He takes charge of a Baggies side which started the Championship season well, but have since slumped to sixth place.
Bruce has extensive experience in English football’s second tier, twice winning promotion to the Premier League with both Birmingham City and Hull City.
He said he did not anticipate such a quick return to management after leaving Newcastle.
“I am delighted to have the opportunity to manage a club that has such great history and tradition,” said Bruce, whose first game will be a trip to Sheffield United on 9 February.
“It is a club I obviously know well from my time in the Midlands, and I am already relishing the challenge of taking it forward.
“I did not envisage I would return to management this quickly, but once I got the phone call from Ron [Gourlay, chief executive], I knew I could not resist the challenge of getting this club back to where they want to be.
“I am coming in with one aim and that is to get Albion to the Premier League.”
Ismael, who was appointed in June to replace Sam Allardyce, was dismissed after Saturday’s 2-0 defeat at Millwall, West Brom’s fourth loss in their last six Championship games.
The club’s stuttering form has seen them slip eight points adrift of the automatic promotion places.
“His excellent man-management skills, tactical nous, and ability to hit the ground running were among the many reasons we decided he was the man to take us forward,” said Gourlay, who was appointed chief executive on Wednesday.
“Promotion remains our objective for this season, and we are confident that with Steve leading the club we have given ourselves every chance of achieving that goal.”