The Shrimpers, who sit one place and a point above the League One drop zone, have agreed a two-and-a-half-year deal with the former England international.
Powell spent six years of his playing career at Roots Hall, making 290 appearances.
The 48-year-old’s last job was as assistant manager to Steve McClaren at Derby. The 48-year-old also played for Derby, Charlton, West Ham, Watford and Leicester.
He started his managerial career at Charlton, winning the League One title in 2012, and joined Huddersfield in September 2014 but won just 15 of his 58 games in charge and was sacked just over a year later.
Watford boss Javi Gracia does not think Abdoulaye Doucoure's form will be affected by his omission from France's latest squad.