Kombouare, who led PSG between 2009 and 2011, replaces Alain Casanova after his contract was ended by mutual agreement last week.
The 55-year-old was appointed Dijon coach in January but parted ways with the club at the end of the campaign.
He has signed a deal until June 2021 with Toulouse, who are 18th in Ligue 1 after picking up just nine points from their opening nine games. His first match in charge will be at home to Lille on Saturday.
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