Murray, 61, was fired in December by the Los Angeles Kings, who went on to win the Stanley Cup under the direction of Darryl Sutter. Murray was coach of the Flyers from 1994-1997, leading Philadelphia to the Stanley Cup final in the latter. He was 118-64-30 in 212 games for the Flyers.
Murray was also coach of the Florida Panthers (1998-2001) and the Washington Capitals (1989-1994).
The Kings, who went 16-4 in the postseason, will still give Murray a championship ring, and Sutter rented Murray's house in Manhattan Beach after taking the job.
"We feel very fortunate to be able to bring Terry back to the Flyers organization," general manager Paul Holmgren said. "Terry brings a wealth of knowledge and experience, is an excellent teacher and a strong believer in the development process of young players."
The Flyers also named Ian Laperriere the director of player development. Laperriere, 38, recently announced his retirement following a career that featured 1,083 games across 16 NHL seasons.
"It's a job that suits me well," Laperriere said. "It's one of those jobs that you need a relationship with the young guys and you need to have some experience, and I think I have both. I've always been able to relate well with anybody, from 18-year-old kids to 40-year-old veterans.
"It's always been one of my strengths, so I'm going to use that."
Laperriere missed the last two seasons due to a head injury. Last season, Laperriere won the Masterton Memorial Trophy for his perseverance, sportsmanship, and dedication to hockey.