McDaniels is expected to serve as an offensive assistant to offensive coordinator Bill O'Brien and Patriots head coach Bill Belichick throughout the NFL playoffs, and will formally take control over the offense once O'Brien leaves for Penn State.
O'Brien was formally introduced as the Nittany Lions' new head coach on Saturday.
Making the hiring more interesting will be McDaniels' first order of business in the Patriots' AFC divisional playoff game next Saturday -- stopping Broncos quarterback Tim Tebow, who he drafted during his stint as head coach in Denver in 2009.
McDaniels has spent the 2011 regular season as the offensive coordinator for the St. Louis Rams.
He began his NFL coaching career as a personnel assistant for the Patriots in 2001 and was part of the team's three Super Bowl-winning seasons in 2001, 2003, and 2004.
The 35-year-old was promoted to offensive coordinator for New England prior to the 2006 season. The 2007 Patriots went 16-0 in the regular season and broke an NFL record for most points scored in one season before losing to the New York Giants in the Super Bowl.
McDaniels left New England in 2009 to become head coach of the Denver Broncos but the team fired him before the completion of the 2010 season after the Broncos started the season 3-9.