Nielson, 53, replaces Mark Hendrickson, who was fired last month as Western Illinois finished the season 3-8 overall and 1-7 in the Missouri Valley Conference.
The Leathernecks were in the NCAA FCS playoffs after the 2010 season but are 5-17 (2-14 conference) since then.
Nielson built a 100-26 record in 10 years at Minnesota-Duluth. His teams won NCAA Division II championships twice, claimed five Northern Son Intercollegiate Conference titles and were 11-0 in the regular season three times.
He previously coached at Wartburg (Iowa), Ripon (Wis.) and Wisconsin-Eau Claire. His record in 20 seasons as a head coach is 170-59-1.