The ex-Wales captain, born in Seven Sisters, spent a decade at Leeds Tykes between 1996 and 2006 taking the Yorkshire club from Division Three into top-flight Premiership rugby.
He steered Leeds to their Heineken Cup debut in 2003 and to a Powergen Cup win in 2005. Davies also spent two years at the Scarlets, leading them to that Heineken Cup semi-final against Leicester Tigers.
The former Scarlets and Leeds boss joined Worcester Warriors as a forwards coach from his position at the WRU as Wales Under-20s coach and National Academy Manager in August 2010.
Commenting on the appointment, Cardiff Blues CEO Richard Holland said: "Phil Davies is a hugely respected coach and we are delighted to have secured him as the new Cardiff Blues Director of Rugby.
"He has shown during his time at the Leeds Tykes, when he took them from Division Three to the Premiership, that he can develop a young team and deliver success.
"He is hugely knowledgeable about the game, extremely hard working and we look forward to having him with us for the forthcoming season."
Speaking of his appointment, Phil Davies said: "I'm really looking forward to starting the job. It's a role I've been passionate about for a long, long time."
"The Blues cover a massive region, the biggest in Wales, and it's a great opportunity for a young group of players and staff to work hard in order to push the region forward.
"Our aim will be to move forward, play attractive rugby and over time develop the Blues into a very competitive side in all competitions and ultimately win trophies and produce quality players to represent Wales."