Lord Coe was a founding director of Fortescue 15 years ago, and chairman Andrew Forrest said he was being brought back for his European and South Asian connections.
"I am delighted Sebastian has agreed to rejoin Fortescue as he brings a unique perspective through his experience in business, marketing and politics across the European Union, India and other markets," he said.
"His substantial profile in those markets, where Fortescue is successfully deepening relationships and marketing its products, will make a valuable addition to our board as we move to our next phase of growth and development."
Forrest is overseeing a new management team, with Elizabeth Gaines taking over as CEO from Nev Power this month.
Coe was the chairman of the organising committee of the London Olympics and most recently has been in the spotlight over Russia's doping programme and corruption in the International Association of Athletics Federations.
A former Conservative MP, the 61-year-old was made a member of the House of Lords in 2000.