The veteran Oscar host made the announcement via Twitter Thursday afternoon: "Am doing the Oscars so the young woman in the pharmacy will stop asking my name when I pick up my prescriptions."
The Academy of Motion Picture Arts and Sciences confirmed the news shortly after.
"I'm thrilled to welcome Billy back to the Oscar stage," said president Tom Sherak. "He's a comic legend and Oscar icon, and it feels good to have him back where he belongs."
This will be the 63-year-old's ninth stint as host. Only Bob Hope has hosted more Academy Awards presentations, with 19 ceremonies between 1940 and 1978. Crystal last hosted the Academy Awards in 2004.
"Some of the best moments of my career have happened on the Oscar stage. I am thrilled to be back there," Crystal said in a statement released by the Academy.
Many people in the Hollywood area were also thrilled to hear the news.
"We've been hoping for the last several years that he'd come back and do it," said fan Vicky Monteleoni. "He has a little bit of everything. He's got the humor, he's got the musicality, and he hits it right where it needs to be hit. He doesn't go over the edge, he doesn't get raunchy, he's just fabulous."
Murphy stepped down as host on Wednesday, just one day after Brett Ratner, his business partner and the director of his latest film, resigned as producer of the Oscar telecast amid uproar over a gay slur.
The controversy started during a press event for "Tower Heist," when Ratner, the film's director, used a term offensive to gays. Word of the slur traveled quickly through the gay community, and by Tuesday, Ratner had stepped down.
But the shakeup didn't slow down the Academy. On Wednesday, it was announced producer Brian Grazer, who won an Oscar for the 2001 film "A Beautiful Bind," would step in for Ratner.
"Very exciting, I'm really thrilled to do this," said Grazer. "As a kid I grew up with a dream of watching the Oscars, and being near the Oscars, and hoping to get one one day. And the idea of producing the Oscars, particularly with Don Mischer, is just a great honor. It's a privilege and I'm thrilled to do it."
Grazer and Ratner have worked together for more than 20 years. Grazer says they are good friends and will remain good friends.
Grazer and Mischer say the last minute changes will not create any setbacks for the Oscars. They say the preparations will get underway in the coming weeks.
The 84th Academy Awards will take place at the Kodak Theatre on Feb. 26, 2012 and will be televised live on ABC7.