Ranieri replaced Eusebio Di Francesco who parted company with Serie A club Roma on Thursday following their Champions League exit at the hands of Porto the day before.
"I’m delighted to be coming back home,” Ranieri said in a statement.
"When Roma call you, it’s impossible to say no.”
The 67-year-old Ranieri, born in Rome, returns to the club where he began his playing career in 1973 and where he came agonisingly close to winning the Serie A title in a previous stint between 2009 and 2011.
Roma led the 2009-10 championship with four matches to go before being overhauled by Jose Mourinho's Inter Milan, who went on to win the title and also beat Ranieri's team in the Coppa Italia final.
Roma are currently fifth in Serie A, one place and three points outside the Champions League slots.
There have been some impressive performances but they have suffered defeats to SPAL, Udinese and Bologna, all in the lower half of the table.
Ranieri's biggest achievement was when he led rank outsiders Leicester City to the English Premier League title in 2016, although he was fired the following February with the club hovering above the relegation zone.
"At this stage of the campaign, it was important to bring in a coach who knows the club, understands the environment, can speak the language and is able to motivate the players. Claudio ticks all of those boxes and he’s very excited to take on this challenge,” said Roma President Jim Pallotta.
The widely-travelled Ranieri has coached more than a dozen clubs in a career that began in 1987 at Campania Puteolana.
They include Italian clubs Juventus, Napoli, Cagliari, Fiorentina, Parma and Inter Milan, English sides Fulham, Chelsea and Leicester City, Spain's Atletico Madrid and Valencia and Ligue 1 sides AS Monaco and Nantes.
He has also coached the Greece national side.
(Writing by Brian Homewood; Editing by Toby Davis)
