“The owner and the Board welcome back a coach with a wealth of top-level experience and success, including his previous spell with the club in 2009 when we lifted the FA Cup,” Chelsea said in a statement.
“(Roman) Abramovich and the Board believe that Guus has what it takes to get the best out of our talented squad,” it added.
The 69-year-old comes in place of Mourinho who was sacked on Thursday. The Portuguese’s departure comes seven months after he led them to the English Premier League (EPL) title. It was Mourinho’s second spell at the club, taking charge in June 2013. He was previously at the helm from 2004-07.
Chelsea won the EPL and the League Cup last season, but have lost nine of their 16 league games so far and are 16th in the table, one point above the relegation places.
Hiddink said: “I am excited to return to Stamford Bridge. Chelsea is one of the biggest clubs in the world but is not where it should be at the moment. However, I am sure we can all turn this season around.
“I am looking forward to working with the players and staff at this great club and especially renewing my wonderful relationship with the Chelsea fans.
Hiddink has not coached any team since he left the Netherlands after poor results in the qualifiers for Euro 2016.
Throughout his managerial career, Hiddink has coached Valencia, Real Madrid, Real Betis, PSV Eindhoven, Turkey, South Korea, Russia and the Netherlands.
The coach will be at Stamford Bridge for Saturday’s match but Steve Holland will take control of team matters for the game alongside Eddie Newton, who will now take on the role of assistant first-team coach.
Steve has been an important and influential member of the coaching staff since 2009, while Eddie is Chelsea through and through, having served as a player and a coach, re-joining the club in 2012 and helping win the Champions League.