Vaughan will broadcast every day from the games with "feature interviews" from comedians and presenters, as well as athletes and sportspeople discussing the big talking points on and off the track.
Absolute Radio will bring daily news bulletins and the latest information on what is going on across London, along with tips on "how to make the most of the capital during what will be one of the biggest celebrations Great Britain has ever seen".
Vaughan, who quit the Capital breakfast show last November after almost eight years, will present Absolute's coverage from the opening ceremony on July 27 to the closing ceremony on August 12.
He'll be on air from 5pm to 7pm on Absolute Radio and the show will be repeated across the entire Absolute Radio Network from 6pm to 8pm, enabling listeners of stations such as Absolute Radio 60s or Absolute 80s to listen around music from their favourite decade.
"For two weeks this summer we're celebrating the two greatest things Great Britain has given the world - sport and music," said Vaughan. "So I'm really looking forward to celebrating both."
Absolute said that the arrival of Vaughan forms part of its summer lineup, which includes coverage of major music festivals, such as the Isle of Wight Festival, Hard Rock Calling, Cornbury Festival and 80s Rewind.
Vaughan made his name on television as co-host of The Big Breakfast in the 1990s alongside Denise Van Outen, but he also forged a successful radio career as co-host of the Capital Radio Breakfast show with Lisa Snowdon, helping the station attract its highest audience since 2005 before he departed last year.