Kerr has never been a head coach but will give up his broadcasting career to replace Mark Jackson, who was fired earlier this month despite playoff appearances in the last two seasons.
The five-time NBA championship winner was in talks to join his former coach Phil Jackson at the Knicks but instead decided to take up the California-based option, closer to his San Diego home.
"They have a good young team. The location is ideal," Kerr told the website (www.nba.com).
"My daughter goes to Cal and plays volleyball. My oldest son is in college in San Diego and our youngest is a junior in high school. It's just a short flight for them."
He won three titles under Jackson in Chicago and another two under Gregg Popovich in San Antonio. He was also general manager of the Phoenix Suns for three seasons before stepping down in June, 2010.
"Ultimately, it was agonizing to say no to Phil because of what I think of him and what he's done for my career," Kerr continued.
"When Phil Jackson asks you to coach the Knicks, how do you say no? I think they're going to turn it around, but it's going to be a big undertaking and it's going to take time. The idea of doing that 3,000 miles from home, it just didn't feel right.
"I told Phil, 'I think I have to pursue this other opportunity.
"He gave me his blessing. He said 'go look at it', and do what was in my heart."
(Reporting by Ben Everill in Los Angeles; Editing by Ian Ransom)