Joseph replaces Clarke Dermody, who becomes assistant coach following a backroom reshuffle.
The 54-year-old Joseph had been head of rugby at the Highlanders this season.
The Dunedin-based team finished sixth this year, bundled out in the quarter-finals by the ACT Brumbies, and ninth last season during Dermody's two seasons in charge.
"I am keen to get stuck in with Clarke and the rest of my coaching team next season," Joseph said in a statement.
"My goal is to take this team as far as it can go and to build a record of success that we can all be proud of."
This is his second stint in charge of the Highlanders, who he led to the 2015 Super Rugby title.
He later took over the Japan national side and coached them to the quarter-finals as hosts of the 2019 Rugby World Cup.
He stood down after Japan bowed out in the group stages of last year's World Cup.
Joseph played 20 Tests for New Zealand during his playing career.
