Huub Stevens was named Schalke's new 2002.
Stevens, 57, had a successful first run in charge of Schalke, lifting the UEFA Cup in 1997, the German Cup in 2001 and 2002, and just missing the Bundesliga title in 2001.
"Stevens was our first choice," Schalke executive director Clemens Tonnies told Sport1. "I'm convinced that we'll do well under him."
The Dutchman replaces Ralf Rangnick, who stepped down last week for personal reasons. Stevens will manage his first match Thursday against Maccabi Haifa in the Europa League (formerly the UEFA Cup) and face Hamburg in league play this weekend.
Stevens has also coached Hertha Berlin and Cologne in Germany. He other stints include stops at Dutch clubs Roda and PSV Eindhoven, and he most recently led Red Bull Salzburg in Austria from 2009-11, winning the league title in 2010.
Stevens played most of his club career for PSV Eindhoven, and also played 18 times for the Netherlands.