Kearney's appointment as McFadden's successor was confirmed late on Monday night via a club statement detailing a drastic overhaul of the Warriors coaching structure. It includes the formation of a football advisory board featuring Rugby World Cup winning All Blacks coach Sir Graham Henry.
Kearney will finish his assistant coach's job with the Brisbane Broncos when their 2016 campaign ends to rejoin the club he made 79 appearances for as a foundation player from 1995-1998.
Despite being sacked from his post, McFadden, who had a year left on his contract, will remain as an assistant to Kearney.
A third change sees club legend Stacey Jones promoted from coaching the second-grade team to provide additional support to the NRL squad. Another experienced international coach is still to be signed.
Current assistant coaches Andrew Webster and Justin Morgan are not contracted for next season.
Warriors chief executive Jim Doyle told the Crowd Goes Wild Breakfast that Kearney had been the Warriors first choice replacement from the outset.
"We certainly considered a few others, but what we felt Stephen could bring to the club is what we wanted really," he said.
He wanted to alleviate fears of fans who may see another coaching change as a potential problem, and didn't think Kearney's poor record at the Parramatta Eels was any indication of his ability.
"They need to see this as more than just a one coach out one coach in thing. It's a major revamp of the whole coaching staff," Doyle said.
"People talk about when Stephen was at Parramatta. That's a number of years ago now, and people learn from those mistakes.
"You have to take into account he's been a very successful coach for the Kiwis, he's got a record with the Kiwis that's second to none. He can motivate players and motivate them to get success."
The Warriors announcement did not clarify Kearney's position as Kiwis coach but Doyle confirmed this morning that he is set to resign from national duties today and won't travel with the team to the UK.
The New Zealand Rugby League could not be reached for comment last night, but the Kiwis are in desperate need of a new coach. Upcoming is a test against Australia in Perth on October 15, followed by their Four Nations title defence in the UK through November.
Kearney is currently focused on ensuring the Broncos are up for Friday's sudden-death NRL playoff against the North Queensland Cowboys, however was looking forward to returning to Auckland.
"While I've got a job to do here. I'm really excited about coming on board at the Warriors," Kearney said in a club statement.
"The club means a lot to me from my time there as a player and this a great opportunity to take the football department in a new direction.
"I've been speaking to Cappy about his role and I'm thrilled he's staying on. He has so much to offer with his knowledge about the club and I'm really looking forward to working with him.
"It'll also be great to have Stacey involved to a greater degree with the NRL squad so we can really maximise the expertise he provides."
McFadden's time as head coach ends after the Warriors missed the NRL playoffs for a third-straight year under his watch.
The 38-year-old took over from former Warriors coach Matthew Elliott after five rounds in the 2014 season but has been unable to achieve the desired level of success.
It's understood his fate was sealed with the side losing their last four games - including three home matches - to finish 10th with just 10 wins from 24 games.
Daily Telegraph reporter Michael Carayannis told Radio Sport's Mark Watson that Warriors management had little option but to take the club in a new direction once the side's performances nosedived towards the business end of the season.
"The way the Warriors limped out towards the end of the season just probably made their mind up that they needed to head in a new direction," Carayannis said.
Warriors managing director Jim Doyle was satisfied that Kearney could deliver in all the areas the club's end of season review had determined needed improving.
"We're delighted we've been able to bring Stephen back to Mount Smart Stadium," said Doyle.
"He was outstanding during his playing career with the club and then with the Melbourne Storm before moving into coaching.
"Stephen has taken the Kiwis to a new level with their successes in the Rugby League World Cup in 2008 and twice in the Four Nations in 2010 and 2014.
"During his coaching career he has also worked alongside two of the best coaches the game has seen in Craig Bellamy at the Storm and Wayne Bennett at the Broncos.
"Our review identified changes needed to be made and, in Stephen, we have a coach who has a reputation for demanding the highest standards."
Warriors owner Eric Watson also endorsed Kearney's appointment.
"I'm thrilled the Warriors have secured a coach of Stephen's calibre as well as building a coaching team of the type and quality we've never seen before," Watson said.
"Stephen brings so much experience to the club and has the added advantage of knowing so many of the country's best players through his long association with the Kiwis."
The changes continue at administrative level, with experienced NFL coach Eric Mangini, club great Awen Guttenbeil and director Owen Eastwood joining Henry on the football advisory board to oversee the club's football operations and offer some sporting knowledge and perspective to the club's board.
"We met recently and will meet monthly covering all football responsibilities," said Watson.
"I'm really excited about what we're creating for the Warriors, giving the senior players better coaching support than they've had before.
"The formation of the advisory board together with Stephen's appointment and the other coaching roles are all part of a comprehensive overhaul of how we do business."
Warriors coaches:
John Monie (1995-1997) - Winning Percentage 50%
Frank Endacott (1997-1998) - 39%
Mark Graham (1999-2000) - 36%
Daniel Anderson (2001-2004) - 55%
Tony Kemp (2004-2005) - 35%
Ivan Cleary (2006-2011) - 49.6%
Brian McClennan (2012) - 36%
Tony Iro (2012) - 0%
Matthew Elliott (2013-2014) - 44.8%
Andrew McFadden (2015-2016) - 44%
