The 53-year-old, who was sacked by Sheffield United in April, led the Tykes to promotion to the top flight for the first time in their history in 1997 during his first spell at Oakwell.
He can also count Sheffield Wednesday, Bristol City and Hartlepool among his former clubs.
A statement published on barnsleyfc.co.uk confirmed Wilson has assumed responsibility for the club's first team with immediate effect.
The Reds have been searching for a new boss since parting company with David Flitcroft at the end of November and have tasked Wilson with pulling the club away from the foot of the table.
Wilson's first game in charge will be Saturday's Yorkshire derby against Leeds at Elland Road.