The 41-year-old was previously the Gunners' Under-15s coach during the 2016-17 season, before departing to Wolfsburg to work with former Arsenal academy director Andries Jonker.
Ljungberg will take up his new role next month, which will see him work alongside Per Mertesacker in the youth setup.
"I'm delighted to be returning to the club," the former player told Arsenal's official website. "Arsenal has always been a special place for me and I'm really excited at this opportunity to work with our under-23 team.
"I look forward to working with the talented young players we have at the club. I know many of them well and will work hard to help them continue developing and become the best players and people they can be."
Mertesacker added: "It's great to have Freddie back at the club. He brings great footballing experience and the highest possible levels of enthusiasm, energy and encouragement for our young professionals."
Ljungberg moved to Arsenal in 1998 and spent nine seasons with the club, winning two Premier League titles and three FA Cups.