The 48-year-old will replace Thomas Schaaf who was the country's longest-coaching top flight coach when he was sacked by the four-times German champions earlier this month after 14 years.
"I'm very happy to take my place on the bench again," former Germany defender Dutt told the club's official website. "Werder Bremen is a great club and it's a very interesting task."
"With Robin Dutt we have signed our preferred candidate for the trainer's job and are convinced that we can make a successful new start," said sports director Thomas Eichin.
Schaaf's ties with Werder stretched back to 1972 when he joined as an 11-year-old before embarking on a 17-year playing career at the northern club.
He was promoted to head coach in May 1999 after coaching the club's youth teams for a decade.
