Drogba, now 36, left Stamford Bridge in 2012 after scoring the winning penalty in the Champions League final against Bayern Munich after a 1-1 draw over 90 minutes and extra-time.
Drogba told Chelsea's official website: "It was an easy decision - I couldn't turn down the opportunity to work with Jose again. Everyone knows the special relationship I have with this club and it has always felt like home to me.
"My desire to win is still the same and I look forward to the opportunity to help this team. I am excited for this next chapter of my career."
Chelsea announced the deal and welcomed the player back to the club in a Tweet.
He had a spell with Shanghai Shenhua in China before turning out last term for Turkish side Galatasaray, and faced Jose Mourinho's side in the Champions League last 16 where Gala suffered defeat.
He remains a firm fans favourite among the Chelsea diehards with the Stamford Bridge club expected to announce his return before the weekend.
He will sign as a player with a view to becoming part of the coaching staff at the club where he spent eight seasons between 2004-2012 scoring 157 goals.
Jose Mourinho said: "He’s coming because he’s one of the best strikers in Europe.
"I know his personality very well and I know if he comes back he’s not protected by history or what he’s done for this club previously. He is coming with the mentality to make more history.
"His 34 goals in European competition remains a Chelsea record, as do his nine strikes in nine cup finals."
Drogba joined the Blues from Olympique Marseille for £24 million in 2004, at the start of Mourinho's first spell in charge, and scored 157 goals in 342 appearances, hoovering up silverware along the way.
He won three Premier League titles, four FA Cups, two League Cups as well as the Champions League before leaving in 2012.
While Chelsea's billionaire owner Roman Abramovich seemed determined to bring more glamorous centre forwards to the club, with Andriy Shevchenko and Fernando Torres all arriving with lofty reputations, the Ivorian proved immovable.
He remains their record scorer in European competition with 34 goals while his nine strikes in nine cup finals is also a record.
When he left Stamford Bridge two years ago to play for Shanghai Shenhua in China, many thought his career was on the wane with his performances in that final season fluctuating between brilliant and largely ineffective.
Mourinho has decided to bring him back, however, after a successful year in Turkey playing for Galatasaray that showed he still had something to offer at the highest level.
The Portuguese predicted in March, when Galatasaray played Chelsea in the Champions League, that Drogba would one day return to the Chelsea family and said on Friday that there was no emotion or sentiment involved in the decision.
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