Banerjee was appointed as Biswajit Bhattacharya's replacement as the head coach at Mohammedan Sporting earlier this year.
The Lions ' new assistant coach, who has replaced Shakti Chauhan, has also won the Santosh Trophy with the West Bengal state team in the 2016-17 term.
Banerjee had started his coaching career with Mohammedan Sporting and also managed Assamese side Green Valley FC before he was named as the caretaker head coach at Mohun Bagan for a month from 19 October 2012, which was prior to the appointment of Karim Bencherifa.
“It is the ideal step in my career at this point. ISL has grown immensely and is now the premier league of India and I am delighted to be a part of a club that has done extremely well during the last four years. The club has shown great faith in young footballers and as a coach it is a philosophy that I have as well, so I am looking forward to this new challenge with Delhi Dynamos,” said Banerjee.
He also coached East Bengal in 2017 after Trevor Morgan stepped down. However, Banerjee injured himself before the season could even start.