The veteran manager returns to the dugout just weeks after reaching an agreement to end his contract with league rivals Lazio following a difficult campaign.
Sarri, 67, who spent a brief period of his childhood in the Bergamo region, faces the immediate task of reshaping an Atalanta squad that has struggled to match the heights achieved during Gian Piero Gasperini's storied nine-year tenure.
The team ended the domestic campaign in seventh place in Serie A, failing to secure elite European football for next season.
Their shortcomings were further exposed on the continental stage, where their Champions League run ended abruptly in the round of 16.
The Bergamo side suffered a heavy 10-2 aggregate defeat by Bayern Munich, a result that ultimately sealed Palladino's fate after less than seven months in charge.