Babbel, who steered Hertha Berlin back into the Bundesliga last year, had been fired in December after a public row over his contract.
The 39-year-old former Bayern Munich player, who has also coached VfB Stuttgart, must now turn Hoffenheim's season around after they recorded only one win in the last 10 league games. He will be on the bench on Saturday against Werder Bremen.
Hoffenheim, in eighth place on 24 points, seven off the relegation zone, also crashed out of the German Cup on Wednesday, losing 1-0 to second division Greuther Fuerth.
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