With current Munster boss Alan Gaffney returning to his native Australia to coach the Wallaby backs in June, Kidney - who signed a three-year deal with Leinster last May - has signed a new three-year contract with Munster, whom he coached for five seasons between 1997/98 and 2001/02.
Gaffney - who watched Munster lose out 19-10 to Biarritz in last weekend's Heineken Cup quarter-final tie in Spain - will remain in control until the province's Celtic Cup involvement ends next month.
Reacting to the news, Munster Chief Executive Garrett Fitzgerald said: "Firstly I would like to thank all those who expressed an interest in the position. It is obviously a very important role and I am delighted that Declan has opted to accept it. In my opinion, he is an outstanding coach, whose record at the highest European level speaks for itself.
"Despite the fact that his family are based in Cork and that he has been away from them for long periods over the past three years, I know it cannot have been an easy decision for him to decide to change roles within the IRFU," added Fitzgerald, in a statement released this afternoon.
"However, we found ourselves in a similar position to Leinster three years ago when we lost him to the national squad so his return is a welcome development."
Munster captain Anthony Foley added: "I am looking forward to Declan's return - looking forward to working with him again. He is a top class coach who I have the height of respect for. All the valuable experience he has gained over the past three years should benefit us."
Leinster Chief Executive Mick Dawson - who confirmed Kidney as the province's director, after he had initially agreed a coaching deal with the Newport-Gwent Dragons last year - stated: "Though disappointed to see Declan leave, I understand his reasons and I would like to take this opportunity to wish him well in the future.
"Leinster would like to acknowledge the success of a campaign which has seen the side secure a home Heineken Cup quarter-final and a third place position in the Celtic League. Declan will stand down with immediate effect.
"The remainder of the backroom team - Paul McNaughton (team manager) and coaches Gerry Murphy, Bobby Byrne and Roly Meates - will assume control of all coaching affairs for the remainder of the season," added Dawson.
Kidney's departure completes a fraught few days for Leinster. With long-time number 8 Victor Costello already retiring and free-scoring fly-half David Holwell returning to his native New Zealand, last Saturday's Heineken Cup quarter-final loss to Leicester was quickly followed by the revelation of openside flanker Shane Jennings' departure for the Tigers.
Idle this week, Leinster complete their Celtic League campaign away to Edinburgh on Saturday, April 16, with a Celtic Cup quarter-final tie against the league's sixth-ranked side to follow, at the end of the month.