Bielema, 50, has spent the past three seasons as an NFL assistant, working this year for the New York Giants after two years with the New England Patriots. He had expressed interest in returning to the college level and was a candidate for openings last year at both Michigan State and Colorado, and earlier in this cycle at Southern Miss, according to sources.
Bielema will receive a six-year contract with Illinois with a starting salary of $4.2 million.
Illinois, which fired coach Lovie Smith last Sunday, also considered Buffalo coach Lance Leipold, Oklahoma defensive coordinator Alex Grinch and Wisconsin defensive coordinator Jim Leonhard, among others, to replace Smith, who went 17-39 in five seasons at the school.
"This is about a chance to take Illinois to a level -- during my lifetime I've seen them have success, and obviously had some times where they've not had much success," Bielema said Saturday on ESPN's College GameDay.
Bielema won three consecutive Big Ten championships at Wisconsin from 2010 to 2012 and went 68-24 in seven seasons with the Badgers with five Top 25 finishes. He left following the 2012 Big Ten championship game for Arkansas, where he went 29-34 before being fired in 2017.
"Illinois and the Big Ten is home for me, and I can't be any more excited about the opportunity in front of me with the Fighting Illini," Bielema said in a prepared statement. "We want to build a program that makes Illini Nation proud and regain the passion that I've seen when Illinois wins."
He grew up in Prophetstown, Illinois, and played defensive line at Iowa, helping the Hawkeyes to a share of the Big Ten title in 1990 (Illinois also shared the championship). Bielema started his coaching career at Iowa before moving to Kansas State and then to Wisconsin, where he was named the successor to Barry Alvarez after the 2005 season.
"Bret Bielema is a proven winner," athletic director Josh Whitman said in a prepared statement. "With three Big Ten championships to his credit, few coaches can match his familiarity with, and success within, the Big Ten Conference. In our conversations, it became clear to me that he is a life-long learner who is continually looking to grow and improve."