Wilson, who left his last role at Swindon in March after a season of struggle, becomes the Blades' fourth permanent manager in nine months and replaces Micky Adams after he was sacked following the club's relegation to League One.
The move has angered some United fans as Wilson, 51, used to play and manage across the city at bitter rivals Sheffield Wednesday while also managing in South Yorkshire at Barnsley.
Around 100 fans were at the ground protesting the appointment, with a banner stating "Love Utd, Hate Wilson!", with chants of "We Hate Wilson" and "Wilson Out" also being heard.
Fellow former Tykes manager Mark Robins, who quit his post at Oakwell nearly a fortnight ago, was also in the running for the job at Bramall Lane.
But the Blades have moved for Wilson, who has signed a three-year contract.
Source: PA
Source: PA