Terry replaces Steve Cleveland, who was reassigned March 17 after six seasons to an administrative position in the athletic department.
Terry and Ohio State assistant Jeff Boals were flown to Fresno earlier this week for interviews. Fresno State made the choice late Wednesday night.
Terry, 43, has been at Texas for nine seasons working under coach Rick Barnes. The Longhorns have been in four Sweet 16s, the Final Four in 2003 and the Elite Eight in 2006 and '08 during Terry's time on Barnes' bench.
Prior to Texas, Terry worked at UNC Wilmington and Baylor and was a high school coach in Texas.
Fresno State plays one more season in the WAC before moving to the Mountain West Conference. Terry will need to secure a strong California staff but also may use his Texas recruiting contacts to expand the recruiting base for his new school.
The Bulldogs face the loss of their top player, sophomore center Greg Smith, who likely is going into the NBA draft.
Fresno State finished 14-17 overall, 6-10 in the WAC. The Bulldogs lost to Nevada in the first round of the WAC tournament on March 9.
Andy Katz is a senior basketball writer for ESPN.com.