Penney has been the Canterbury number two for the last three years and was previously the academy manager.
The 41-year-old told the official Canterbury website www.crfu.co.nz: "I have no doubt we have the talent to continue to emulate the fantastic achievements of previous red and black teams. My job will be to ensure that happens."
Penney played over 100 games for the province, taking the Ranfurly Shield from Waikato in 1994.
As a coach, he contributed to Canterbury's 2004 NPC title win and the Crusaders' 2005 Super 12 triumph.
CRFU chief executive Hamish Riach said: "Rob has done his time as assistant coach and because he's been doing such a great job he deserves this opportunity in the top role.
"We are lucky to have a coach of Rob's calibre ready and willing to continue with the team."
Riach said the union would advertise for an assistant coach to join Penney.
Meanwhile, Waikato's Jono Gibbes is likely to miss New Zealand's European tour starting next month, after aggravating a foot injury against Canterbury last week.
One Kiwi forward heading to the British Isles, though, is Auckland's Bryce Williams, who has signed a one-year contract with Ireland's Leinster.