McClaren, who had been head coach for the last nine months, was dismissed only hours before the club announced Benitez was taking over on an initial three-year deal.
Newcastle United put faith in ex-Real coach to save them
Benitez has only 10 matches to save Newcastle, with the first of those games coming at league leaders Leicester City
Media reports said there was also an opt-out clause if Newcastle are relegated this season.
Former Liverpool and Real Madrid boss Benitez, 55, has only 10 matches to save United, with the first of those games coming at league leaders Leicester City on Monday.
"It will be a challenge not just for me and my staff but for the players, the club and the fans,"Benitez said of the task facing him.
Newcastle are 19th in the 20-team league having won only six league games under McClaren, whose fate was sealed when Newcastle were beaten 3-1 at home by Bournemouth last weekend.
Benitez has been without a team since he left Real in January, and Newcastle will be the third English club to employ him following his six years at Liverpool between 2004 and 2010.
His greatest achievement with an English club was leading Liverpool to victory in the 2005 Champions League final with a penalty shootout win over AC Milan after they trailed 3-0 to the Italians at halftime.
Benitez also served as Chelsea's interim manager in the 2012-13 season, guiding them to victory in the Europa League final over Benfica before he left the club.
The Spaniard certainly knows how to get results but his preferred, mainly defensive, style is not universally popular with fans.
He likes to use a 4-2-3-1 shape which has brought him success both domestically and in Europe.
Newcastle said Benitez would bring coaching assistants Fabio Pecchia, Francisco de Míguel Moreno and Antonio Gomez Perez with him.
"All of us must push together in the same direction and with the same target in mind," Beniteztold the club website, addressing the 'Toon Army' of fans.
"Personally, it means my return to the Premier League, closer to my home and my family. I can't be happier," added the Spaniard, who kept his home in the North-West after leaving Liverpool.
Benitez will be reunited at Newcastle with Jonjo Shelvey, who he signed for Liverpool from Charlton Athletic just before he left the club in June 2010.
Shelvey spent three years at Liverpool and two at Swansea City before moving to Newcastle six weeks ago, being made captain by McClaren last month.
In an interview with Sky Sports before Benitez was appointed, Shelvey was honest about Newcastle's plight.
"We need to prove to the fans that we are not going to hide, but I think the players have let the club down. I don't think the manager has, I think the players have."