Priestman, who also guided Canada to Olympic glory in Tokyo, has signed a two-year deal.
She replaces Paul Temple who left following the conclusion of the last A-League season.
Priestman recently finished serving a one-year ban from any football-related activity for her role in the Canadian team's misuse of drones at last year's Paris Olympics.
Football's world governing FIFA suspended Priestman after an investigation revealed that she along with other coaching staff used a drone to spy on New Zealand's training session at the Olympics.
Following an independent review of the incident by Canada Soccer, Priestman was permanently stood down from the head coaching role.
Phoenix Chairman Rob Morrison said the club was thrilled to have made a signing of Priestman's calibre.
"We're really pleased to be able to welcome Bev back to football," Morrison said. "We all know she's had a period of time away from the game, but we understand the circumstances and we're really comfortable with this appointment.
"Bev can't wait to get started and we're really happy that she's going to be coaching the Phoenix."
Priestman had previously worked as head of football with New Zealand Football and mentored current Football Ferns coach Michael Mayne.
In total Priestman has coached at four FIFA Women's World Cups, three Olympic Games and three FIFA youth world cups.
She's twice been shortlisted for the Best FIFA women's coach award and holds the world's most prestigious coaching qualification, the UEFA pro licence.
"Bev is a world-class coach and a top person, and I have no doubt she will bring her winning mentality to the Wellington Phoenix," Morrison said.
Priestman said she was grateful for the opportunity.
"Huge thanks to Rob, Shaun Gill (director of football) and David Dome (general manager) for giving me this chance to come back to the game I love and hopefully bring some special moments to not only this city, but this country," Priestman said.
"Coming back to New Zealand and seeing the Phoenix week in week out as the only professional women's team has been amazing. We have a responsibility now to fly the flag for this country and try to do something special.
"On the pitch I want to see players express themselves and be brave. I want players to take risks, play forward, excite the fans and get them out of their seats."
Morrison said the signing of Priestman was a big move for the club.
"Securing Bev as head coach speaks to the ambition we have for this team.
"Signing one of the world's best coaches is a statement for the club, but it is also a statement for the Ninja A-League, reflecting the ambition and investment from APL for the development of the women's game in Australasia."
It is a full circle moment for Priestman, who 16 years ago headed up coach development in Wellington. She then went on to be New Zealand Football's director of football development and played a pivotal role in the award-winning Whole of Football Plan.
