Sandberg was tapped on an interim basis to replace the fired Charlie Manuel Aug. 16, and since then has guided the out-of-contention Phillies to an 18-16 mark.
General Manager Ruben Amaro Jr. said the former Hall of Fame second baseman had signed a three-year contract through 2016 with a club option for 2017.
"We feel that Ryne has the qualities and leadership skills that are essential to move our club and our organization forward," Amaro said. "Ryne's six years as a minor league manager, Hall of Fame credentials and work ethic warrant this opportunity."
"This is a top-notch organization," Sandberg added. "I think the standards have been set on what the expectations are, especially the last nine or 10 years. And that's the goal, to get back to there as soon as possible."
The Phillies entered Sunday with an 71-83 record, on track to finish the year with their first losing season since 2002.