Thompson, who officially starts on Monday, replaces Tim Morse, Yahoo's chief financial officer, who had been interim chief executive since September. Carol Batz was fired in September after two-and-a-half years on the job after failing to raise revenue or gain ground on Facebook, Google and other rivals.
"Scott brings to Yahoo! a proven record of building on a solid foundation of existing assets and resources to reignite innovation and drive growth, precisely the formula we need at Yahoo!," Roy Bostock, Yahoo's chairman, said in a statement. "His deep understanding of online businesses combined with his team building and operational capabilities will restore the energy, focus, and momentum necessary to grow the core business and deliver increased value for our shareholders."
Thompson will also join Yahoo's board of directors, which is currently looking to sell stakes in Asian Internet companies. The company may also sell a stake to private equity investors. When Batz was fired the board said it was considering the sale of all or part of the company.
At PayPal, Thompson grew revenue to $4 billion from $1.8 billion and increased the number of users to 104 million from 50 million in 190 countries.
"Yahoo! has a rich history and a solid foundation to build on, and its continued user engagement is one of the many reasons for my enthusiasm," he said in a statement. "Clearly speed is important but we will attack both the opportunity ahead and the competitive challenges with an appropriate balance of urgency and thoughtfulness."