Drew will replace Jim Boylan, who served in an interim capacity after the Bucks fired Scott Skiles in January.
"We are pleased to reach an agreement with Larry Drew to become head coach of the Milwaukee Bucks," Hammond said. "After a thorough search and interview process, it was clear to us that Larry's track record in Atlanta, along with his experience as an assistant coach and player, make him the right choice to lead our club."
Drew coached the Atlanta Hawks the last three years, putting together a 128-102 record. The Hawks lost in the opening round of the playoffs each of the last two seasons after making it to the Eastern Conference finals in 2011.
He also has been an assistant coach with the Hawks, New Jersey Devils and Washington Wizards. Drew played 714 games in the NBA with four teams after being selected in the first round of the 1980 draft by Detroit.