Smith, who has left Redditch United to take charge at the Grove, will be tasked with engineering an immediate return to the Evo-Stik Central Premier following this season’s relegation.
The Yeltz finished bottom but one in the table, winning just six matches in one of the most miserable campaigns in their history.
Smith replaces Lee Hughes and Asa Charlton in the hotseat, with the pair having finished the season in caretaker charge after last month’s exit of Rob Smith and Larry Chambers.
Yeltz director of football Keith McKenna said: “I am delighted that we have secured the services of Paul and am certain he has the credentials to take us back up to the Premier Division and above.
“He is meticulous and communicates very well on and off the field and has a great understanding of all levels of the game and will bring an exciting brand of football to the Grove.”
Smith began his managerial career at Alvechurch where he made more than 250 appearances as a player.
He then moved to Sporting, leading the Rouslers to the Midland League title in 2017.
After leaving Bromsgrove in March last year, Smith took charge of Redditch six months later and led the club to safety and a 15th-placed finish in the Evo-Stik Central Premier.
The Yeltz are aiming to bounce back after a disastrous campaign which also saw them part company with long-serving boss John Hill in November.
Smith said: “I feel honoured and privileged to be appointed manager of Halesowen Town. “Keith and Karen’s drive and passion for the club really excited me. That, added to the fantastic fan base the club has, makes this feel like the perfect fit for me.
“My immediate goal is to get a squad together that can compete for a return to step three, and that the Yeltz fans can relate to and be proud of.’’