The 41-year-old had been heavily expected to replace Maurizio Sarri in the Stamford Bridge hot seat this summer, despite having just one season of managerial experience when he guided Derby County to the Championship play-off final last term.
And the club have now confirmed that Lampard, who made 648 appearances and won 11 major trophies with the Blues over a 13-year spell as a player, has now been appointed.
Described by the Blues as "one of the greatest players in our history", Lampard arrives with Chelsea facing a transfer ban for the next two windows and having just lost their best player in Eden Hazard.
However, he is looking forward to the challenge of keeping the west Londoners in the thick of a Premier League title chase and vying for more silverware.
He told the club's website: "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: "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."