The former Rangers and Sunderland boss, 70, announced in March he would be leaving Turkish side Fenerbahce at the end of this season.
Advocaat, who will be assisted by ex-Chelsea manager Ruud Gullit, replaces the sacked Danny Blind.
Blind lost his job after a 2-0 loss to Bulgaria left the Netherlands fourth in their World Cup qualifying group.
The team also failed to reach last summer's European Championships.
The Dutch Football Association (KNVB) confirmed the appointments of Advocaat and Gullit at a news conference on Tuesday.
In his previous spells as national team coach, Advocaat led the Netherlands to the 1994 World Cup quarter-finals and the semi-finals of Euro 2004.
Fenerbahce are third in the Super Lig, eight points behind leaders Besiktas, with four games to go.
The Netherlands have appointed Dick Advocaat as head coach for a third time.