Bloomfield succeeds Gary Rowett, who was let go by Oxford after managing just one win in a run of 10 Championship matches.
The U's sit 23rd in the table, three points behind Portsmouth in 21st.
“This felt like the right place at the right time,” Bloomfield said. "Oxford United are a club with good foundations, ambition and a playing group with significant potential, and that matches exactly where I am as a coach."
Bloomfield was in attendance at Friday's FA Cup tie against MK Dons in Buckinghamshire, with interim boss Craig Short remaining in charge.
The 41-year-old will take the reins at Oxford for the first time against Bristol City in the league on 17 January.
Bloomfield made his name at Wycombe Wanderers, guiding them into a League One promotion race before leaving for Luton in January 2025.
He was unable to halt the Foxes' decline, however, and was sacked in October, leaving the club 11th in the Championship.