The 1994 World Cup-winning captain returns for what will be his second stint in charge of the Selecao, having spent four years at the helm between 2006-2010.
He succeeds Luiz Felipe Scolari, who left the post after failing to claim Brazil's first World Cup on home soil following a humbling 7-1 defeat to Germany in the semifinals.
In Dunga's previous spell in charge of his country, he won 42 and lost just six of his 60 games, guiding them to the Copa America 2007 and Confederations Cup 2009 titles, but was criticized for his pragmatic approach.
The 50-year-old was fired from what was his first senior coaching role in 2010 after suffering a World Cup quarterfinal defeat to the Netherlands.
Dunga’s only other experience in the dugout came at Brazilian club Internacional last year, but he lasted less than 12 months before being dismissed after suffering four straight league defeats.
His first Brazil squad will be announced in late August ahead of the Selecao’s Gillette Brasil Global Tour friendly fixtures with Colombia and Ecuador in the United States.