The deal that brings Jordan back to Butler is for six years, a source told ESPN.
"This is a dream come true,'' Jordan said. "Butler is a place that means so much to me and my family, and I am honored and humbled to lead this storied program. I want to thank President [James] Danko and Barry Collier for the faith they have placed in me to continue The Butler Way and our great success.''
Jordan played at Butler for Bulldogs athletic director Barry Collier and was an assistant coach with the Bulldogs under Todd Lickliter.
Jordan followed Lickliter to Iowa (2007-10), then was on staff at Michigan under John Beilein (2010-16) before he took the Milwaukee head-coaching job last season.
"LaVall is a tremendous coach who exemplifies The Butler Way," Collier said. "He has played a major role in successful programs that have competed at the highest levels. LaVall also has a deep appreciation for our university and this program and will recruit and develop young men who will represent Butler well."
Jordan played four seasons at Butler from 1997 to 2001 and led the team in scoring (11.7 points per game) in the 1999-2000 season.
Milwaukee athletic director Amanda Braun said in a statement that the search for Jordan's successor will begin immediately.
"Even though the time we had together was short, we are proud to have brought in a coach that embodies such character and a great sense of leadership,'' Braun said about Jordan. "He has been an integral part of setting the building blocks in place for the success of our program. We are confident we will continue to build on his success and look forward to the future.''
In his only season with the Panthers, Jordan led the team to an 11-24 record and to the Horizon League Tournament championship game.