Her conviction in a corruption scandal last year had cut short her fourth term as the chief minister, but earlier this month, an appeals court cleared her.
She will take oath on Saturday morning, officials said.
Her replacement O Panneerselvam quit on Friday, paving the way for her return.
Jayalalitha, a former actress, is one of India’s most colourful politicians.
She has been a leading figure in south Indian politics for three decades.
Ms Jayalalitha was convicted and sentenced for four years by a trial court last September.
She was found guilty of amassing unaccounted-for wealth of more than $10m (£6.4m) and had to quit as the chief minister.
The appeals court ruling earlier this month paved the way for her returning as the head of Tamil Nadu government.
On Friday morning, Tamil Nadu Governor K Rosaiah’s office said in a statement that Mr Panneerselvam, party leader and loyalist who was heading the government in her absence, resigned along with his cabinet ministers.
The governor accepted the resignations and invited Ms Jayalalitha to form a government “at the earliest”, the statement added.
Later in the afternoon, Ms Jayalalitha called on the governor and accepted his invitation to form the government.
Thousands of supporters flashed victory signs and threw flower petals at her car as it sped through the streets of Chennai.
Earlier, legislators belonging to her regional AIADMK party met and elected Ms Jayalalitha as the leader of the legislature party.
“This is the happiest day of our life,” former minister Sellur K Raju told the NDTV news channel.
Former actress who appeared in more than 100 films
Chief minister of Tamil Nadu on four occasions – from 1991-96, briefly in 2011, 2002-06 and 2011-14
Has alternated in power with her great rival, 90-year-old DMK party leader M Karunanidhi
Feted by various Indian prime ministers over the last 20 years trying to win her support
Critics accuse her of establishing a personality cult, but supporters praise her poverty relief efforts
Known for her extravagant lifestyle – police once discovered more than 10,000 saris and 750 pairs of shoes in a raid on her premises.
