Laws replaces Alan Knill, who was sacked on Thursday after his side took just 10 points from the opening 14 games of the League One season. Russ Wilcox will return as his assistant manager.
"The board are delighted that Brian has returned to our club and feel confident he will be able to restore confidence to our talented squad of players and look forward to progressing quickly towards a more secure position in the league," said Scunthorpe United.
Laws returns after a brief spell in the Republic of Ireland, where he took charge of Shamrock Rovers for the final seven games of the season as interim director of football.
He left the Iron in November 2006 after being approached to take charge of Sheffield Wednesday, ending an association of more than eight years with the club. He quit in 2004, but was reinstated following a boardroom coup which saw Steve Wharton return and oust his predecessor Chris Holland.
Laws twice led the Iron to promotion from what is now League Two, as play-off winners in 1999 and runners-up in 2005.
After managing Wednesday he also had a short spell in charge of Burnley, taking charge with them in the Premier League but was unable to prevent the Lancashire side dropping back to the Championship.
He had been strongly linked with a return to management with Hartlepool, backed in from 10-1 to 1-6 with some bookmakers over the weekend.
Chris Brass and Neil Cutler, Knill's backroom staff who came to Glanford Park from Bury with him, have agreed to discuss their futures with Laws.