The 62-year-old Scot, who netted 199 goals for the Merseysiders during his playing career, was fired in May 2012 following a poor run of results in his second spell in charge at Anfield.
Nevertheless, Dalglish is delighted to be back with the Premier League outfit.
"It is an honour and privilege to be asked to return to Liverpool as a director of the club," he said.
"I have always said if there is anything I could do to help this club I would make myself available - when the call came I had no hesitation.
"I am looking forward to working with the board of directors and contributing to the strategic issues that affect Liverpool Football Club.
"Liverpool has given me and my family so much since we came here just over 36 years ago and my priority is and will always be to have the club's best interests at heart."