The 39 year-old has penned an 18-month contract with the Cherries, with the option to extend for a further year, having taken charge of 12 matches this season since stepping up from his role as first-team coach.
Bournemouth lost three of its opening four games in the Premier League, including a 9-0 hammering against Liverpool, and axed Scott Parker from his position before O'Neil swiftly steadied the ship.
A six-match unbeaten streak marked the start of O'Neil's tenure, though that was followed by four defeats in a row.
However, Bournemouth secured back-to-back wins against Everton in the Carabao Cup and Premier League before the season paused for the World Cup in Qatar and O'Neil has now been given the job on a permanent basis, despite rumours the club had been speaking to Marcelo Bielsa.
"Gary did an excellent job on an interim basis and the board are delighted to make his position as head coach permanent," chief executive Neill Blake said. "We have been impressed with the way he has conducted himself from the moment he joined the club and feel he has earned this opportunity to continue to take the team and the club forward."
Bournemouth returns to action with an Carabao Cup tie against Newcastle United on 21 December, before resuming its Premier League campaign six days later against Chelsea.