Donadoni was sacked after the Azzurri only reached the quarter-finals of Euro 2008 following a penalty shoot-out loss to Spain.
Lippi, who has been out of work since guiding Italy to World Cup glory in Germany two years ago, will be unveiled at a press conference in Rome on 1st July.
"I'm very, very happy and I'm very motivated," said Lippi after the announcement.
"Marcello Lippi will return as coach of Italy," read a statement by Italian Football Federation (FIGC) president Giancarlo Abete published on their website.
"He will replace Roberto Donadoni."