The 36-year-old, who scored two goals for Mumbai in the inaugural edition of the eight-team league last year, took on a similar dual role in 2012 for Chinese club Shanghai Shenhua.
"I would like to say thank you to the Mumbai City FC staff for giving me the opportunity to coach the club," Anelka, who has played for a host of English Premier League clubs including Chelsea, Manchester City, Arsenal and Liverpool, said in a statement.
"We are all very excited to start this new season. I'm personally very eager to take on this new role for the club and put a strong competitive team on the pitch," added the well-travelled Frenchman.
Owned by, among others, Bollywood actor Ranbir Kapoor, Mumbai finished seventh last year.
"I'm thrilled to have Nicolas as our marquee player-cum-manager," Kapoor said.
"Last year, he impressed us all with his tactical knowledge and excellent motivational skills. It's a role both parties have been discussing for a couple of months and it's been a great start. We will provide Nicolas all the support required to try and win the league this year."
Brazil great Zico coaches the Goa franchise of the ISL, while compatriot and former Real Madrid defender Roberto Carlos is expected to take charge of the Delhi team for the second season which starts on Oct. 3.
(Reporting by Amlan Chakraborty in New Delhi; editing by Patrick Johnston)
