Coleman's replacement Hill had left Spotland in May 2011 to take charge of Championship side Barnsley.
However, a run of negative results ended with the 43-year-old being relieved of his duties over the recent festive period.
"When the club approached me about coming back to Spotland I didn't hesitate," Hill told the club's official website. "Rochdale will, and always will remain dear to me, and to be honest it was a no brainer."
Hill has signed a contract until the end of the season.