Walsh will make his ninth appearance on the judging panel whe the show returns to ITV1 at the end of the summer. He joins Take That's Gary Barlow, who announced that he was returning last month.
The Irish music mogul, who has managed acts such as Boyzone, Westlife and X Factor finalists Jedward, is the only judge to appear on every series of The X Factor.
"It's my ninth year on the show and I'm delighted to take my seat once more on the judging panel," said Walsh.
X Factor boss Simon Cowell said: "The show wouldn't be the same without Louis. I'm really happy he is coming back."
Co-star Barlow commented on Twitter: "I hear there's a lovely lad from Ireland joining me on X Factor. Congrats Louis! One of these years you'll be head judge."
Walsh was famously ditched from X Factor in 2007, when he was replaced by choreographer Brian Friedman. However, Cowell quickly reinstated Walsh after only a couple of days of auditions, confessing that he had made a "big mistake" dumping his co-star and friend.
Tulisa Contostavlos is expected to be announced as the third X Factor judge soon, but a replacement for Kelly Rowland, who confirmed her departure this week, remains up in the air.
Dannii Minogue is Digital Spy readers' pick to fill the vacant fourth judge slot.
X Factor filmed auditions begin on May 23, so all four judges must be confirmed before that date.
Peter Fincham, ITV's director of television, said: "Louis is, quite simply, an X Factor institution. It's great to have him back for this year's run."
Richard Holloway, managing director at Thames, added: "Louis's wealth of experience in the music industry, coupled with the fact he has been on every series of The X Factor, makes him a fantastic judge and mentor."