Cooper-Dyke, who coached last season at Texas Southern, replaces Michael Cooper, whose USC team finished 11-20 last season.
Cooper-Dyke has also coached at UNC-Wilmington and Prairie View A&M.; She has an eight-year record of 150-106.
Last season, Texas Southern finished 20-12 and won the Southwestern Athletic Conference regular-season title.
"If you were to ask me what my dream job was at any point in my coaching career, I would always have said my dream is to come back and lead the USC women's basketball team," Cooper-Dyke said in a statement. "I'm literally living the dream coming back to California and being named the new women's basketball coach at USC."
Cooper-Dyke played for USC's 1983 and 1984 national championship teams, won an Olympic gold medal in 1988 and helped lead the Houston Comets to four consecutive WNBA titles. She was inducted into Naismith Memorial Basketball Hall of Fame in 2010.
In 2008, the NCAA penalized Prairie View for violations that occurred during Cooper-Dyke's first season in 2005-06. The NCAA found that the school had failed to educate Cooper-Dyke on rules.
"In Cynthia Cooper-Dyke, we have a proven winning coach who happens to be a USC basketball icon," USC Athletic Director Pat Haden said in a statement. "She was a part of the best basketball ever played here at USC, and she has seen success at so many levels of the game.
"As a coach she has turned around several programs. We believe she can lead USC back to successful women's basketball, and we welcome her back to the USC campus."