Krueger has spent the last two seasons as an assistant with Edmonton after a stint with the Carolina Hurricanes' scouting department.
The Winnipeg native played and coached in Europe before leading the Swiss national team from 1997 to 2010.
Krueger guided Switzerland to a sixth-place finish at the 2006 Olympics and a fourth-place showing at the 1998 IIHF World Hockey Championship.
The 52-year-old replaces Tom Renney as the Edmonton's coach after two miserable seasons at the bottom of the standings.
Renney led the rebuilding Oilers to an NHL-worst 25-45-12 record in 2010-11 and the team barely improved this past season, finishing 29th with a 32-40-10 mark.