Hogan, real name Terry Bollea, was fired after tapes recorded in 2007 revealed him making racist statements about his daughter Brooke’s ex-boyfriend.
The recording surfaced during Hogan’s $100m libel case against Gawker in 2015, after the celebrity news site published a sex tape of the wrestler with his best friend’s wife.
His quotes were published by the National Enquirer and Radar Online ahead of the trial.
He was reportedly heard saying in the recording that “I am racist, to a point” and repeatedly used the word “n*****”.
The WWE severed ties with Hogan in July 2015.
The wrestling body confirmed on their website on Sunday that the 64-year-old, who is one of the biggest names ever in the sports entertainment franchise, has been welcomed back into the WWE family.
Its statement read: “After a three-year suspension, Hulk Hogan has been reinstated into the WWE Hall of Fame.
“This second chance follows Hogan’s numerous public apologies and volunteering work with young people, where is helping them learn from his mistake.
“These efforts led to a recent induction into the Boys & Girls Clubs of America Alumni Hall of Fame.”
Hogan has said he feels like he is “back home” after the decision, and posted: “Just met with the @WWE Superstars and on all levels the volume of love and support was overwhelming.
“I’ve been praying for this day and I finally feel like I made it back home.
“Only Love 4 the #WWEUNIVERSE brother HH.”
Hogan’s reinstatement into the hall of fame was met with a mixed response on social media.
His daughter Brooke praised her father’s “transformation”, adding: “None of us are perfect, but we can unlearn old things and learn new ways.”
The wrestler Zack Ryder also celebrated his return, referring to him as “brother” in a tweet.
But a Twitter used named only as “Miya” was unimpressed with the WWE’s decision, writing: “It doesn’t matter that he said it in the confines of his home. He still said it.”
Michigan-based news reporter Benjamin Raven also criticised the decision and wrote: “All you’ve done is tell people that it only takes three years to get over obvious, in your face racism.”
The wrestler won $140m (£95.4m) in damages in his sex tape case against Gawker in March 2016.