Mike Coughlan will join as chief engineer as part of an initiative to boost the British team that won the last of their nine constructors' titles in 1997 and have yet to pick up a point from three races this season, according to the team.
Coughlan has not worked in F1 since he was fired as McLaren-Mercedes' chief designer and banned for two years for his part in one of racing's biggest ever scandals.
McLaren were fined a record US$100 million (Dh367m) and disqualified from the 2007 constructors' championship after a 780-page technical dossier on rival Ferrari cars was found at Coughlan's home.
"He left Formula One in 2007 because of conduct, which he acknowledges was wrong and which he profoundly regrets," Frank Williams, the Williams team principal, said. "His two-year ban from the sport expired some time ago and Mike is now determined to prove himself again.
"Williams is delighted to be able to give him the opportunity to do this and we are very pleased to have one of the most talented and competitive engineers in the sport helping us to return to the front of the grid."
Since his ban, Coughlan helped develop an armoured military patrol vehicle and has been working for Nascar competitor Michael Waltrip Racing.
"My experience in 2007 was life changing," Coughlan said. "Since then, I have endeavoured to put my skills to good use.
"Now I am looking forward to returning to a sport which I love and to joining a team that I have admired for many years. I will dedicate myself to the team and to ensuring that we return to competitiveness while respecting the ethical standards with which Williams has always been synonymous."
Meanwhile, Williams co-founder Patrick Head will retire this year, the team's chairman Adam Parr said.
"Patrick has made it clear that he will be retiring this year, so at some point this year that will happen," he said in a conference call after announcing the appointment of Coughlan.
"That's nothing to do with the restructuring, it's just the fact that he's turning 65 and had already signalled that it's time for him to move on to his next set of interests in life."
Head, who set up the championship-winning team with Frank Williams in 1977 and designed a series of world-beating cars, sold more than half of his shares in the company this year when the team made an initial public offering.
The sale netted the Briton around £32 million (Dh198.5m).
Head said in February that while he would be standing down as director of engineering in the near future, he had no plans to retire completely and would remain a director and involved in the company.
Williams said Sam Michael, the technical director, and Jon Tomlinson, the chief aerodynamicist, had agreed to quit at the end of this year as part of the reshuffle.
"Both Sam and Jon are talented and driven people who have worked hard for Williams over 10 and five years respectively," Williams said.
"Nonetheless, they have recognised that the team's performance is not at the level that it needs to be and have resigned in order to give the team the opportunity to regroup and undertake the changes necessary."