The Blues agreed a deal with Derby County worth £4 million to cover the final two years of Lampard’s contract at Pride Park after a week’s worth of talks with the 41-year-old.
He has signed a three-year deal upon his return to Stamford Bridge to succeed Maurizio Sarri, who departed the club after a single season in charge to take over at Juventus.
Lampard spent 13 years as a player in west London, scoring 211 goals in 649 games to become Chelsea’s all-time top goalscorer.
He won three Premier League titles, the Champions League, four FA Cups, two League Cups and the Europa League while also finishing second to Ballon d’Or winner Ronaldinho in 2005.
It is understood that Lampard will bring staff from Derby with him, with ex-Blues midfielder Jody Morris expected to join as his assistant manager after working with him at the Rams.
Former Blues coach Chris Jones will also return, while head of performance analysis Steve Rands is believed to be another of the six to eight backroom staff that have spoken to the west London side.
Chelsea’s Development Squad manager, Joe Edwards, will also be promoted in line with Lampard’s arrival, with the highly-rated young coach boasting a close relationship with Morris from his time in the academy.
Lampard spoke of his delight at re-joining the club where he is regarded as a legend upon the announcement, saying: “I am immensely proud to be returning to Chelsea as head coach.
“Everyone knows my love for this club and the history we have shared, however, my sole focus is on the job in hand and preparing for the season ahead.
“I am here to work hard, bring further success to the club and I cannot wait to get started.”
Chelsea director Marina Granovskaia added on the club’s official website: “It gives us great pleasure to welcome Frank back to Chelsea as head coach.
“Frank possesses fantastic knowledge and understanding of the club and, last season, he demonstrated he is one of the most talented young coaches in the game.
“After 13 years with us as a player, where he became a club legend and our record goalscorer, we believe this is the perfect time for him to return and are delighted he has done so.
“We will do everything we can to ensure he has all the support required to be a huge success.”
Lampard will now lead Chelsea into seven pre-season matches in Dublin, Japan, Germany and Austria before opening the season against Manchester United at Old Trafford on August 11.
He will not, though, be able to request new signings due to a two-window transfer ban imposed by FIFA.
The arrival of Christian Pulisic, whose move from Borussia Dortmund was completed in January, will help ease the load on Lampard’s squad while Mateo Kovacic has seen his loan move from Real Madrid turned into a permanent deal