The former Barcelona boss has returned to a position he was removed from 11 years ago after his failure to secure the Oranje a place at the 2002 World Cup.
Following Bert van Marwijk's resignation as Netherlands boss after a disastrous Euro 2012 campaign, the KNVB has turned to a man it sacked just over a decade ago in the wake of the Oranje's failure to qualify for the 2002 World Cup in Japan and South Korea.
"We are delighted to have come to an agreement," KNVB director of football Bert van Oostveen stated on Friday evening. "We were looking for a coach with a lot of experience and with personal and professional charisma."
"Van Gaal has left his mark nationally and internationally and we know him as a dedicated and very motivated coach."
Meanwhile, the former Barcelona boss, who has been out of the coaching game since parting company with Bayern Munich last year, is looking forward to the task of qualifying the Oranje for the 2014 World Cup.
"I am happy that the KNVB has approached me," Van Gaal enthused. "This is the challenge I have been waiting for."
Netherlands, runnerup at the 2010 World Cup, surprisingly exited Euro 2012 before the knockout stages, having lost all three of its group games, against Denmark, Germany and Portugal.