Derby lost 3-0 at home to Reading on the final day of the following season, meaning they missed out on the play-offs after ending February top of the table, and McClaren was sacked in the same month.
BBC Radio 5 live’s Pat Murphy said: “McClaren was interviewed last night just hours after Morris spoke warmly to a business leaders’ conference about the head coach he sacked almost 18 months ago after the club’s season had imploded.
“McClaren is recognised as one of England’s outstanding coaches and Powell – who played for him at Derby in the 1990s when McClaren was first-team coach – is happy to work under him.
“It will be McClaren’s fourth spell at Derby. His contract will run to summer 2018 and he’s expected to be in the dug-out for the Leeds match this Saturday. The rest of the coaching staff will be kept on.”
As well as coaching England from 2006-07, McClaren was previously manager at Middlesbrough, FC Twente, Wolfsburg and Nottingham Forest.
McClaren U-turn a ‘shock’
Analysis: BBC Radio Derby’s Owen Bradley
“Shocked is an understatement considering the nature of Steve McClaren’s departure.
“Though he was ultimately sacked, McClaren damaged lots of relationships at the club by never bringing to an end the links with Newcastle. In the eyes of some, that derailed Derby’s promotion campaign.
“Mel Morris is a big fan of McClaren’s quality as a coach, but was part of the group that sacked him. If that relationship has been repaired then it will happen.”