He will take over at the National League South club following Steve McKimm’s departure last week.
Saunders leaves Margate to return to the division where he managed Maidstone United, earning the club three promotions in four years.
He said he couldn’t miss the chance to manage again at a higher level.
“It has been a really tough decision to leave, but after losing two seasons through Covid, this was an opportunity to move up a level that I couldn’t refuse," said Saunders.
“Everyone knows what I think of Margate. I really enjoyed my playing days there and then my time managing the club, and I leave with a heavy heart."
He takes over a club that finished 16th last season and Tonbridge chairman Dave Netherstreet is excited for the future.
He said: “We are very pleased to be able to make this announcement.
"We believe that Jay’s experience and achievements are what we need to turn this club into the principal footballing centre in west Kent both at first team level and as a main sporting hub within the community.”