Knill was appointed eight days after Ian Baraclough was sacked following the 3-0 home loss to Preston North End.
Assistant Chris Brass and goalkeeping coach Neil Cutler will also move alongside Knill from the League Two side Bury to Glanford Park.
The announcement followed an agreement between the Iron and the Shakers to compensate the Lancashire side for the loss of their backroom staff.
"It's an opportunity to manage for at least eight games in the Championship to help Scunthorpe try and retain that status at that level," said Knill.
"Even if they come down they will be a strong side in League One. It was a very difficult decision to leave Bury. It was a tough decision to leave and one that I haven't taken lightly."
The Iron said Knill had always been top of the their shortlist, with the former Iron defender keen to move back to North Lincolnshire.
The sticking point had appeared to be Bury, who were reluctant to lose their manager as they push for automatic promotion from League Two.
"At one stage we felt we might have had to wait until the end of the season but we're delighted to have Alan and his team in place for the remaining games of the season," said David Beeby, the Iron's general manager.
No decision has yet been made as to who will be in charge of the team on Saturday for the Championship, as Tony Daws and Lee Turnbull have been taking the first-team players in training all week.