Woodson, who was an assistant coach for this year's NBA champion Detroit Pistons, succeeds Terry Stotts, who was fired in May.
The 47-year-old Woodson is reunited with his NBA teammate of more than two decades ago, Hawks General Manager Billy Knight.
"I looked at the Atlanta Hawks as a situation where I could go in with a friend of mine and new ownership and put my stamp on and try to build something as a team," Woodson said.
"Billy Knight was the big reason for me coming here. I have a great deal of respect for Billy. I've known him for over 25 years. His friendship hasn't wavered one bit."
Woodson, who played 11 seasons in the NBA, was an assistant under Larry Brown for the past three years, two with Philadelphia before joining him in Detroit.
Atlanta was 28-54 in the 2003-04 season.