The 41-year-old Estevez has coached at different levels for more than 22 years. That includes stints in Spain's La Liga and previously in MLS as an assistant from 2017-18 for the Columbus Crew.
"Nico is a seasoned coach with experience at the highest levels of our game, both in the United States and in Europe,'' FC Dallas chairman and CEO Clark Hunt said. "He has the drive, the knowledge, and the vision to succeed, and he has a proven track record as a great teacher and communicator.''
Estevez replaces Luchi Gonzalez, who was fired in September after he opened his third season by winning only six of its first 26 games with nine draws. Marco Ferruzzi, the club's director of soccer operations, finished the season as interim coach.