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The German, most recently in charge of Hertha Berlin before his dismissal in January last year, previously led the Bundesliga side between 2010 and 2013.
He now returns for a sophomore stint with the club mired in the relegation zone, having claimed just three wins in the top-flight this season, succeeding caretaker Michael Wimmer.
Labbadia, a journeyman player who was a member of Bayern Munich's 1993-1994 Bundesliga-winning squad, spoke of his delight at returning to the team on a contract through 2025.
"Everyone knows VfB are not just another club to me," he told the club's website. "I spent a very important period of my coaching career in Stuttgart, and now Iād like to [keep us] in the Bundesliga.
"We'll get to work right away and get everything ready for the start of training on 12 December. We'll quickly get an overview of the team's performance level and work hard with great pleasure to make progress."
During his previous spell, Labbadia managed a best finish of sixth with the club during the 2011-2012 season, and led it to the DFB-Pokal final a year later.
He will be joined by Bernhard Trares and Benjamin Sachs as assistants on the coaching staff at the Mercedes-Benz Arena.
In addition to Hertha, Labbadia has also had spells in charge of Bayer Leverkusen, Wolfsburg and two stints with Hamburg.
Stuttgart resumes its Bundesliga season against Mainz on 22 January.
