Italiano is one of the favourites to replace Antonio Conte as Napoli coach.
"Bologna announces that it has appointed Domenico Tedesco as first team technical director," the club said in a statement, adding the coach had signed a two-year contract with an option for a further year.
The 40-year-old, who holds joint Italian and German citizenship, recently left Turkish club Fenerbahce, where he replaced Jose Mourinho, after less than one season.
He previously coached Schalke 04, Spartak Moscow and RB Leipzig, with whom he won the German Cup in 2022.
He also spent two years at the helm of the Belgian national team.
Born in Italy, Tedesco - whose name means German in Italian - was brought up in Germany from the age of two.
He is set to be part of a summer coaching merry-go-round in Italy, where Bologna, Napoli, AC Milan and Lazio will all hire a new boss, with Atalanta and Fiorentina potentially doing likewise.