"I am delighted to welcome Jose back to Chelsea. His continued success, drive and ambition made him the outstanding candidate," said chief executive Ron Gourlay in a statement published on the Chelsea website.
"It is our aim to keep the club moving forward to achieve greater success in the future and Jose is our number one choice as we believe he is the right manager to do just that.
"He was and remains a hugely popular figure at the club and everyone here looks forward to working with him again."
Mourinho had left the club in 2007 after differences between him and the owner of the club Roman Abramovich widened. He is believed to have texted senior players, John Terry and Frank Lampard about his plans to leave the club in 2007.
Mourinho had led Chelsea to Premier League titles in 2005-06, two League Cups and the 2007 FA Cup. Mourinho has returned with the objective of winning the Champions League trophy which had eluded him twice in 2005 and 2007 when the club lost to Liverpool on both the occasions.
The first thing on Mourinho's mind would be to turn Chelsea into a Premier League contenders once again as the team tumbled down the table after his exit.
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