The 67-year-old replaces Jose Peseiro, who left the Premier League side after only one season in charge.
The northern club finished fourth last season, just missing out on a Champions League spot, but lifted the League Cup, their first trophy in almost 50 years.
"I am sorry that Braga only won one title during this period. There are many records to beat here," Ferreira told a news conference.
In 2011 Braga lost the Europa League final to fellow Portuguese side Porto a year after finishing runners-up in the domestic league for the first time.
Ferreira has arrived from Lisbon club Sporting, who finished seventh and failed to secure a Europa League spot last term, but at Braga the fans credit him with building in his first stint from 2003 to 2006 the foundations of the club's recent success.
He took the first steps towards transforming a team battling against relegation into one fighting for the European places.
Since then Ferreira has coached Porto, Malaga, Panathinaikos and Sporting, winning three consecutive championships for Porto.
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