Timberwolves president of basketball operations Gersson Rosas met with external candidates for the position at the draft combine, but the team kept coming back to Saunders, according to ESPN's Adrian Wojnarowski.
"Ryan is an excellent communicator and has developed open and trusting relationships with our players," Rosas said in a statement. "I've known Ryan for many years and have always respected his approach to the game, work ethic, basketball knowledge, and passion.
"His coaching style and philosophies are ideal for the modern NBA and I am confident that as a partner he will get the most out of our players as we build an identity and a sustainable winning model."
Saunders, 33, the son of late NBA coach Flip Saunders, had been serving as the Timberwolves' interim head coach since the firing of Tom Thibodeau in January. After the switch, the Timberwolves were 17-25 under Saunders.
Prior to taking over for Thibodeau, Saunders had been an assistant coach in Minnesota since 2014 when he joined his father's coaching staff. The senior Saunders coached the Timberwolves for parts of 11 seasons over two separate stints.
Minnesota will also hire Brooklyn Nets scout Gianluca Pascucci as assistant general manager, sources told Wojnarowski. Pascucci previously worked alongside Rosas with the Houston Rockets.