The ex-Blackpool boss led the club to survival, claiming four wins from his 11 games in charge.
Alex Rae, who has been assisting Ince, has also joined permanently.
"Paul and Alex were brought into Bearwood to instil confidence, structure, spirit and determination into a first-team squad which in difficult circumstances had lost its way early in the year. And ultimately, he had to produce almost immediate results," chief executive Dayong Pang said.
"Fourteen points from their first 10 games proved enough to keep the club in the Championship and I am delighted that Paul and Alex have accepted the challenge to take this club forward."
Ince left Blackpool in January 2014 after less than a year in charge, becoming the club's fourth-shortest-serving manager.
Under his management, Blackpool won 12 out of 42 games and, at the time of his sacking, the club had won just two points from their last 12 games.
Prior to his move to Reading, it was the 54-year-old's last role in management.
Reading also confirmed that former manager Mark Bowens has returned to the club to take up a role as head of football operations.
"He brings with him a wealth of experience, both from his playing days and a coaching career spent primarily in the top tier of English football,” Reading added.