Johnson returned to the NBA as coach of the Lakers near the end of the 1993–94 NBA season, replacing Randy Pfund, and Bill Bertka, who served as an interim coach for two games. Johnson, who took the job at the urging of owner Jerry Buss, admitted "I've always had the desire (to coach) in the back of my mind." He insisted that his health was not an issue, while downplaying questions about returning as a player, saying, "I'm retired. Let's leave it at that." Amid speculation from general manager Jerry West that he may only coach until the end of the season, Johnson took over a team that had a 28–38 record, and won his first game as head coach, a 110–101 victory over the Milwaukee Bucks. He was coaching a team that had five of his former teammates on the roster: Vlade Divac, Elden Campbell, Tony Smith, Kurt Rambis, James Worthy, and Michael Cooper, who was brought in as an assistant coach. Johnson, who still had a guaranteed player contract that would pay him $14.6 million during the 1994–95 NBA season, signed a separate contract to coach the team that had no compensation. The Lakers played well initially, winning five of their first six games under Johnson, but after losing the next five games, Johnson announced that he was resigning as coach after the season. The Lakers finished the season on a ten-game losing streak, and Johnson's final record as a head coach was 5–11. Stating that it was never his dream to coach, he chose instead to purchase a 5% share of the team in June 1994.
Determined to play competitive basketball despite being out of the NBA, Johnson formed the Magic Johnson All-Stars, a barnstorming team composed of former NBA and college players. In 1994, Johnson joined with former pros Mark Aguirre, Reggie Theus, John Long, Earl Cureton, Jim Farmer, and Lester Conner, as his team played games in Australia, Israel, South America, Europe, New Zealand, and Japan. They also toured the United States, playing five games against teams from the CBA. In the final game of the CBA series, Johnson had 30 points, 17 rebounds, and 13 assists, leading the All-Stars to a 126–121 victory over the Oklahoma City Cavalry. By the time he returned to the Lakers in 1996, the Magic Johnson All-Stars had amassed a record of 55–0, and Johnson was earning as much as $365,000 per game. Johnson played with the team frequently over the next several years, with possibly the most memorable game occurring in November 2001. At the age of 42, Johnson played with the All-Stars against his alma mater, Michigan State. Although he played in a celebrity game to honor coach Jud Heathcoate in 1995, this was Johnson's first meaningful game played in his hometown of Lansing in 22 years. Playing in front of a sold-out arena, Johnson had a triple-double and played the entire game, but his all-star team lost to the Spartans by two points. Johnson's half court shot at the buzzer would have won the game, but it fell short. On November 1, 2002, Johnson returned to play a second exhibition game against Michigan State. Playing with the Canberra Cannons of Australia's National Basketball League instead of his usual group of players, Johnson's team defeated the Spartans 104–85, as he scored 12 points, with 10 assists and 10 rebounds.