It was a return to the club he left in January 2002 following Mansfield Town's sacking of Peter Shirtliff last week and his assistant will be Paul Holland who has been caretaker manager since Shirtliff's departure.
Dearden (62) inherits a young squad who are sixth from bottom in League Two and admitted it was precisely that precarious League position that persuaded him to reurn to the club he loves.
"The chairman phoned me a week ago and asked me to see him," he said.
"He had asked me to come back here two or three times before but I thought the time was right as I don't like to see Mansfield Town Football Club in the position they are in.
So I thought I would come back and see if I could improve that and get us in the top half of the table which, from what I have seen, is very possible.
"I think it is very negative to be talking about the bottom two and relegation. If you can look towards getting yourself into the top half then the bottom half takes care of himself.
"I have agreed to come back until the end of the season. We will see how I feel about it from then and take it from there.
"I didn't ask about a contract or anything. I just want to put my experience into the dressing room and the club.
"I am surprised to be back but I am very, very pleased. I have spent a lot of time here in the past 20 years and I have had some good times here."
With Dearden leaving lst time after the chairman refused to give him a contract, some fans were surprised Dearden would consider working with him again.
But Dearden said: "My relationship with Keith Haslam is no different.
"It was well documented why I left here last time when he would not give me a contract and then Notts came in for me.
"But since then he has contacted me a few times about coming back so he must think something of me.
"He is not a personal friend or anything. We work together and we had a good working relationship here last time.
"Obviously I am only here because Peter Shirtliff lost his job. But he will have learned things here and I hope he gets another job as soon as possible.
"It wasn't a difficult decision to come back. This is a good, young side. I am not coming in blind either as I watched them four or five times this season for other teams.
"I went to Darlington on Saturday and Mansfield could have won by four or five. They played very well.
"I saw them pre-season against Forest and Sheffield Wednesday when they played very well, I saw them play Accrington Stanley when they missed two penalties and should have had six and against Notts County when they could have been 5-0 up at half time."
In recent years Dearden has been busy scouting for other clubs - something he intends to use to his advantage.
"Mansfield have quite a bit of talent in a young side and just need a bit of experience here and there," he said.
"I know where those players are as I have been working for four or five other clubs scouting and with my name in the game and my contacts being as good as anyone's, I can bring players in.
"Whether I need to bring them in straight away we will have to see. I know at some stage the side will need stregthening. But if they play like they played at Darlington then we won't need to be rushing.
"I have never had any money to spend anywhere I have worked though if I didn't think I could bring any players in then I wouldn't have come here
"My staff brought through some good young players the last time I was here and they came through together. I am sure we can do that again.
"This team just needs a little bit of jiggling about here and there and it can be successful.
"I know the way I want to play and they will be encouraged to play football - though in the right areas, of course."
Dearden is looking forward to working with Holland again as his assistant and added: "I can still remember back in pre-season 1990 when we gave Paul Holland his debut as a 15-year-old at Kidderminster Harriers.
"Paul will learn from me - good or bad - and the good thing in this game is that you never stop learning and maybe I will learn a few things from him too."
Oldham-born Dearden was a striker for Oldham Athletic, Crewe Alexandra, Chester City and Sheffield United, before going into management with Chesterfield, Mansfield, Port Vale and Notts County.
He first joined the Stags coaching team in 1983 and was eventually appointed first team coach.
The Stags won a promotion and the Freight Rover trophy during that spell before he moved on to be assistant to John Rudge at Port Vale in 1994.
But five years later he was back at Field Mill as manager.
Steve Parkin had quit after releasing a large chunk of the squad and Dearden inherited just nine first team players with the new season looming large.
A patchwork team, including loan players, were hammered 6-0 at Brighton on the opening day.
But he eventually led them to the fringe of the Play-offs before a dreadful run of eight games without a goal, including six defeats, saw them slip to 17th.
A season of consolidation in 2000/01 saw them finished 13th before he finaly got the Stags engine purring the following year and managed to guide them to third place before a shock announcement he was leaving to join neighbours Notts County on 7th January.
But Stuart Watkiss stepped in to continue Dearden's momentum and got the club promoted by the end of the campaign.
Dearden was voted Nottinghamshire Sports Personality of the Year in 2003 but left Notts after two years in charge and has been scouting since.
Stags chief executive, who chose to break the news of Dearden's appointment exclusively to Mansfield 103.2 radio earlier in the day and was unavailable for comment to everyone else, said, in a typed club statement: "Billy will be taking over as manager of the football club with Paul as his assistant in the coaching of the first team.
"I am delighted that he agreed to come back to Mansfield Town as I believe he is the right man for the job who can help this football club progress.
"He has agreed to step in and take charge of all aspects of the football club for the rest of the season and hopefully beyond that as well."