"It's great to return to the league in a city, a community and an organization that has such an outstanding reputation and passion for hockey and success," Hartley, who coached the Stanley Cup-winning Avalanche in 2001, said in a statement.
"I look forward to assuming my position and starting the preparation process for the 2012-13 season."
The 51-year-old Hartley last coached in the NHL in 2007 when he was fired by Atlanta after an 0-6-0 start to season. He had joined the Thrashers midway through the 2002-03 season.
During five seasons with Colorado starting in 1998, Hartley led the team to four division titles and four appearances in the conference finals.
His third season with Colorado was his most successful as they steamrolled through the league with a 52-16-10-4 record, a division title along with the Presidents' Trophy as top team in the regular season and the Stanley Cup.
"Bob Hartley is a winner. Bob has won at every level he has coached ... and we are confident he is going to continue his winning ways in Calgary," said Flames General Manager Jay Feaster.
"He is a tireless worker, an outstanding motivator, a great bench boss and game strategist, and a teacher at heart."
The Flames and Sutter decided to part ways last month after he failed to get the team into the Stanley Cup playoffs in each of his three seasons in charge.
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