Bird left the post after the 2011-12 season for health reasons. Donnie Walsh, who held the job during Bird's absence, will become a consultant and Kevin Pritchard will remain as the team's general manager.
Pacers owner Herb Simon said Bird's return gives the team "three of the best basketball minds in the business."
"When he left last July, Donnie and I both told him the door would be open for him to come back when he's ready," Simon said. "Larry had a huge impact on this team and where it is now, so it's fitting that he comes back at this time."
Since taking over operations in 2003, Bird has acquired the draft rights to center Roy Hibbert and taken guards Paul George and Lance Stephenson in the NBA Draft.
He was named NBA Executive of the Year after the 2011-12 season.
The Pacers went 49-32 in 2012-13, when they won the Central Division title before losing to the Miami Heat in the Eastern Conference Finals.
In a statement Wednesday, Bird said the time off "gave me a chance to reflect, to rest, to take care of some health issues and it re-charged me."