The 48-year-old returns to the Foxes having signed a contract that lasts until the end of the 2013/2014 season, replacing the sacked Sven-Goran Eriksson, after a compensation package was agreed with npower Championship rivals Hull.
He will be joined at the King Power Stadium by assistant managers Craig Shakespeare and Steve Walsh.
Sly Fox: Nigel Pearson has returned for a second spell in charge of Leicester
During his last spell, Pearson steered Leicester to the League One title in 2009 before they reached the 2010 Championship play-off semi-finals, losing to Cardiff on penalties.
But Pearson, who quit for Hull in June 2010, made it clear he wanted to return to the Foxes despite also turning around the fortunes of the Yorkshire club.
Pearson said: 'Craig, Steve and I are all extremely excited to be rejoining Leicester City, working with the players and working closely with the board of directors to achieve the club's aspirations.'
Vice-chairman Aiyawatt Raksriaksorn added: 'We are very pleased to have secured the services of Nigel, Craig and Steve and we are sure they are the men to lead this club forward.
'Nigel is very well respected within the game and he and his team have the knowledge of this division and the ability to motivate the players, staff and supporters.
Swede... turnip: Sven Goran Eriksson was sacked by the club last month
'They achieved a great deal during their last spell at the club, rescuing Leicester City from its lowest position and coming so close to a place in the Premier League.
'We are sure that this time around, with everyone's support and endeavour, they can take us one step further.'
Pearson will take charge of training for the first time on Wednesday before being introduced to the media at a press conference at the King Power Stadium.
Hull moved swiftly to confirm the appointment of Nick Barmby as caretaker manager. The Hull-born 37-year-old agreed to take over after former Tigers boss Warren Joyce opted to stay as reserve-team manager at Manchester United.
A club statement read: 'Following the departure of Nigel Pearson to Leicester City, the club is delighted to announce that Nick Barmby has agreed to take on the role of caretaker manager for the foreseeable future.
Stepping up: Nick Barmby has been named as Hull's caretaker boss
'We would like to thank Nigel Pearson, as well as his assistants Craig Shakespeare and Steve Walsh, for their hard work during their time at the club and wish them all the best for the future.
'Having overseen training over the course of the last week, Nick's first game in charge will be this Saturday's trip to Derby County. The club would like to stress that there is no present interest in pursuing alternative managerial candidates at this time.
'Nick will be assisted by Stuart Watkiss as first-team coach, Seamus McDonagh as goalkeeper coach and a new addition, Darren Robinson joining us from Nottingham Forest.
'Nick will also be joined by a new assistant manager in the near future.'
?Barmby jumps to head of queue for Hull job after United's Joyce rejects chanceScholes set for United elevation if Hull appoint Joyce as Pearson replacementLeicester offer ?2m deal to lure Pearson back from Hull as Sven's replacement
Source: Daily Mail