The former Aberdeen boss takes over from Neill Collins, who has left the Kirkcaldy club to join Sacramento Republic in the United States.
Raith Rovers CEO Andrew Barrowman told the club's official website: "Barry’s wealth of experience, both as a player and a coach, combined with his passion for the game, makes him the perfect fit for the next chapter of our journey.
"The Board of Directors and I have every confidence in his ability to lead the team with vision, determination, and professionalism."
Raith Rovers sit sixth in the William Hill Championship as they prepare to face Ayr United at Somerset Park on Saturday.
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