Saunders replaces David Kahn, whose contract as team president was not renewed. Kahn had been with the Timberwolves since May 2009.
Saunders, 58, returns to the team he coached from 1995-2005. The Timberwolves made the playoffs every full season under Saunders. His final full season -- 2003-04 -- marked the last time Minnesota appeared in the playoffs.
He also coached at Detroit and Washington. His coaching record is 638-526.
"My goal is to help the Wolves achieve the success that we experienced during my first tenure with this organization." Saunders said in a release. "We have a strong nucleus in place and will look to add assets that will allow us to make the playoffs and eventually compete for an NBA championship."
Minnesota was 31-51 this past season. The last time the Timberwolves finished above .500 was 2004-05, the season in which Saunders was fired after 51 games.