He takes over with the team sitting 18th in the table, two points above the relegation zone after losing 2-0 to Bradford over the weekend.
Former boss Gary Mills was sacked in the wake of the defeat.
A statement from York said: "The decision to appoint Nigel was based on his solid Football League experience, his strong coaching ability and his extensive knowledge of players throughout the leagues.
"The York City board of directors welcomes Nigel Worthington to the club and looks forward to working with him."
Worthington, who managed NI between 2007 and 2011, started his managerial career at Blackpool in 1997.
He enjoyed an impressive spell at Norwich which culminated in promotion to the Premier League in 2003/04.