Birmingham chief executive Garry Cook said he had tried to bring Rooney to the desert kingdom in his previous role as CEO of the Saudi Pro League.
"We discussed Saudi Arabia. It wasn't going to happen," Cook said at a joint news conference with Rooney on Thursday.
A move to Saudi Arabia would have seen Rooney follow former England teammate Steven Gerrard, who was appointed manager of Al-Ettifaq in July.
Rooney said his decision was "no disrespect" to managers who had chosen to move to Saudi Arabia, adding: "For me, I felt my development, my pathway, was a different way.
"I think for myself, firstly to get back into English football is great. It's what I've wanted to do.
"I've had opportunities over the last four to six weeks at other clubs as well, but since speaking to Birmingham, it was a really easy decision.
"I want to be successful; it's clear this club wants to be successful; and everything we spoke about was very similar."
Rooney's first game in charge will come when Birmingham face Middlesbrough on Oct. 21.