Brown, 71, has coached two collegiate teams and eight clubs in the NBA. He resigned his most recent coaching position with the Charlotte Bobcats in 2010.
"Larry Brown is one of the top coaches in the history of the game," SMU Athletic Director Steve Orsini said. "He is a legend and has made every team he has ever coached a winner.
"As we transition into the nation's top basketball conference, the Big East, his leadership will be invaluable."
Brown's two collegiate coaching stops have been at UCLA (1979-1981) and Kansas (1983-88). He went 177-61 at those two schools and won a national title with Kansas, but the Jayhawks were barred from taking part in the 1989 NCAA Tournament due to recruiting violations.
"I'm thrilled to have the opportunity to coach at SMU," said Brown. "I've built so many relationships in the basketball world and my success has been due to the coaches I've played for and the players I've coached. I want to thank them all. I always thought of myself as a college coach and this gives me a wonderful chance to get back where I started."
Brown replaces Matt Doherty, who was fired last month after six years with the Mustangs.
SMU will become part of the Big East in all sports starting in 2013.
Brown's NBA coaching jobs have come with New Jersey, San Antonio, the Los Angeles Clippers, Indiana, Philadelphia, Detroit, New York and Charlotte. He has a pro record of 1,098-904 and is the sixth on the NBA's all-time win list.