The 45-year-old took charge in March following the departure of Sean O'Driscoll after just 16 games.
Whitney guided the Saddlers to third in League One and a play-off place, only for them to be beaten by eventual winners Barnsley in the semi-final.
Former Walsall defender Dean Holden is also confirmed as first-team coach.
Holden returned to Bescot in March to join the existing backroom staff of goalkeeping coach Neil Cutler and the vastly experienced John Ward, who remains their professional development coach.
Whitney - who spent his playing career as a defender with Huddersfield Town, Wigan Athletic, Hull City and Lincoln City - first joined Walsall in 2003 as a physiotherapist, before becoming part of ex-boss Dean Smith's coaching team.
"I've been at the club for over 13 years," said Whitney. "I'm extremely proud that Walsall have given me my first permanent position in football management.
"It's about finishing the job and creating a sense of unity, not just in the squad but with the fans and all connected with the club. We can push on together."
Chairman Jeff Bonser added: "Jon is the right man for the job. He knows the inner workings of the club and has all the relevant knowledge and experience to take the club forward."
"It comes as no real surprise that Walsall have opted for continuity by making Jon Whitney their new manager.
"They had their fingers burnt when Sean O'Driscoll proved to be the wrong person at the wrong time following the departure of Dean Smith to Brentford.
"Whitney's commitment to the club can never be doubted after 13 years at the Banks's Stadium and his motivational qualities are the stuff of legend, but he will now have to prove himself as a tactician and man-manager.
"Not too much should be read into the Saddlers' play-off elimination at the hands of Barnsley - they ran into League One's in-form team.
"However, expectations should not necessarily be set as high as another promotion push, given the likelihood that there will be significant movement among the playing squad."
Jon Whitney has been appointed Walsall manager on a three-year deal after ending the 2015-16 season in interim charge of the League One club.