Fangio, 59, interviewed last week to replace head coach John Fox last week, and general manager Ryan Pace eventually hired former Kansas City offensive coordinator Matt Nagy.
Fangio joined the Bears in 2015 after the team owned one of the league's worst pass defenses in 2014. Although the Bears are a combined 14-34 in the last three seasons, the team finished in the top 10 in points allowed, total yards and passing yards last season.
The Bears accomplished a top-10 defensive showing while losing six starters and key contributors to injured reserve in linebackers Leonard Floyd, Willie Young, Pernell McPhee, Jerrell Freeman, defensive back Quintin Demps and defensive end Mitch Unrein.
Before returning to the Bears, Fangio was considered a candidate for the defensive coordinator job with the Green Bay Packers. On Wednesday, Green Bay hired former Cleveland Browns head coach Mike Pettine for the position.
Fangio has 31 years of coaching experience in the NFL. He was the defensive coordinator with the Carolina Panthers (1995-1998), Indianapolis Colts (1999-2001), Houston Texans (2002-2005) and San Francisco 49ers (2011-2014).
Earlier Friday, the Bears announced the hiring of former Oregon head coach Mark Helfrich as offensive coordinator and Chris Tabor as special teams coordinator.