The 34-year-old, who had been in caretaker charge since February, has signed a two-year contract at Aggborough.
He will be assisted by former Walsall defender Jimmy O’Connor, who will step up from his role as Harriers academy coach after also agreeing a two-year contract.
The pair had impressed the club’s board who moved quickly to secure their appointments once the National League North season was declared over due to the coronavirus pandemic.
Penn, who made more than 200 appearances during two spells as a player at Aggborough, said: “I’m so proud. Everyone knows this is my club. I’m a local lad and I know what it means to the people of the town.
“I’ll be doing everything in my power to succeed here and I know the fans will be right behind me.”
Penn and O’Connor will hold video calls with every member of the Harriers squad early next week to outline plans for the future.
Their appointments are expected to be the first of several at Aggborough in the coming weeks as new owner Richard Lane stamps his mark on the club.
Lane, who completed a takeover of the club last October, has been working together with interim chief executive Neil Male on a large-scale restructure.
And though uncertainty continues to abound over just when non-league football might return, they remain determined to try and restore stability to a club which has seen six different managers, both caretaker and permanent, in the last two seasons.
Harriers ended the season 16th in the table, with Penn their third manager of the campaign after John Pemberton and Jimmy, the latter having moved to Solihull Moors after barely two months in charge.
Male said: “Both Richard and I want stability for the club. Having had more than five managers in 18 months, there’s a need to put foundations in place. Jimmy and Russ have our backing to do that.
“I’ve seen personally Russ develop and grow in stature during his spell as interim manager and with the support of Jimmy I know they are people who can bring success back to Kidderminster Harriers.”