The long-time general manger of the Minnesota Timberwolves, following a decorated playing career with the Celtics from 1980-93, McHale accepted an undisclosed three-year contract with an option for a fourth season, according to the NBA's website (NBA.com).
McHale's announcement will end his recent stint as a television broadcaster and return him to the sidelines where he briefly stepped in for the Timberwolves' final 63 games of the 2008-09 season, along with stretch as interim coach in 2004-05.
"I had really wanted to coach again. You miss the competition when you're away from it," McHale, who was elected to the Basketball Hall of Fame in 1999, told NBA.com.
"This was a chance. It came up, I talked to them. After spending time with them, I felt this is a good situation to get involved in."
The 53-year-old McHale expects to be introduced by the Rockets at a news conference in Houston on Friday.
Rick Adelman departed the Rockets days after completing his fourth season at the helm of the franchise.
The Rockets have missed the playoffs for two straight seasons and have struggled due to the repeated injuries suffered by former All-Star center Yao Ming.
(Writing by Jahmal Corner in Los Angeles; Editing by John O'Brien)