He last coached the Tampa Bay Buccaneers in 2008.
Gruden holds a 95-81 regular-season record as a head coach and a 5-4 mark in the postseason.
Reports in America suggest Gruden has been handed a 10-year contract worth $100m, which would make it the richest coaching contract in National Football League history.
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He will be introduced by the Raiders at a media conference on Tuesday and replaces Jack Del Rio, who was sacked on December 31.
With Gruden's impending return to the Silver & Black sidelines, it seems like the flawless time to take a look back at one of the most famous (infamous?) trades in Raiders history. Gruden helped the Raiders earn back-to-back playoff appearances in 2000, and 2001, but was traded the following year to the Tampa Bay Buccaneers where he won a Super Bowl in his first season with team, against none other than the Raiders. Now returning to the team that provided him with his first Head Coaching gig, he'll walk on to the field in front of thousands of fans who adore him.
The defensive line struggles with defense coordinator Ken Norton Jr., leading to a late-season firing and replacement with John Pagano. He bounced around for a few more years before being hired Raiders owner Al Davis as the Head Coach in 1998. He came back in 2004 and had a 30-34 record in four seasons, leading Washington to two playoff berths. Great legacy on Monday Night Football. For ESPN, Gruden was present for the 2010 Rose Bowl and 2010 BCS National Championship game for ESPN radio.