Franklin, 38, takes over from Robbie Caldwell, who led the Commodores to a 2-10 record. Caldwell was installed as interim coach in July when Bobby Johnson abruptly announced his retirement.
Franklin had been in the Maryland program for the last eight seasons. He served as assistant head coach and offensive coordinator for the last three years and had been tabbed as successor to Terrapins' Coach Ralph Friedgen.
His ability to recruit is considered one of his strengths.
The Vanderbilt position is his first as a head coach.
"The hiring of Coach Franklin represents a new day for Vanderbilt football," Vanderbilt Chancellor Nicholas S. Zeppos said. "He has my full support and commitment that we will help him create an environment where the successes on the field equal the university's extraordinary successes off the field.
"Coach Franklin will have an immediate and positive impact on our students, alumni, faculty, staff and broader Vanderbilt community and I welcome him to Vanderbilt."