O'Leary spent almost two decades at the club after joining as an apprentice in 1992, making over 300 appearances for the Swans before leaving in February 2010.
He took over as manager of Welsh Premier League side Neath last season, guiding them to a third-place finish, but financial difficulties saw the club fail to attain the required domestic licence and they were relegated before being wound up. He now returns to the Liberty Stadium as a coach with responsibility for helping develop the club's youngsters for first-team action.
O'Leary will also be in charge of the reserve team, which is likely to switch to an under-21 format.
He told the club website: "I'm honoured and excited. Ironically it's 18 years to the day (July 4) that I signed for the club as an apprentice.
"Now I'm joining as a coach and it's a great honour to be back starting my second apprenticeship.
"It helps that I've been around long enough to see what it takes to play for this football club, especially being around as a player when Roberto Martinez initiated the change in playing style to its current philosophy.
"When I left the club two years ago I hoped and dreamed that this day would come. Everyone knows the feelings I have for this club and, as always, I will give everything to my new role."
Swansea will begin pre-season training ahead of their second Premier League campaign on Monday.
Laudrup has yet to delve into the transfer market since being named as successor to Brendan Rodgers, but is reportedly interested in moves for Genoa defender Chico Flores and Villarreal midfielder Jonathan de Guzman, both of whom he worked with at Mallorca.
Source: PA
Source: PA