Unveiling a £1.8 billion (€2.1 billion) plan, Hammond said around 4,000 troops had already returned and another 11,000 would move back by 2016. The remaining 4,500 would be back in Britain by 2019.
The government had previously said that all British troops in Germany and their families would be home by 2020. Most are stationed in the states of Lower Saxony and North Rhine-Westphalia.
The speeded-up return of the troops will lead to a shake-up of UK army bases to accommodate them when they return. Four will close and parts of three others will shut to allow resources to be concentrated on bases where the returning forces will be stationed.
They will be based at seven sites, including Salisbury Plain in southwest England, Edinburgh and Leuchars in Scotland, Catterick in northern England and Colchester in southeast England.
There has been a British army presence in Germany for 70 years, but the end of the Cold War necessitated a change in thinking.
Hammond told parliament: "The return of the British Army from Germany marks the end of an era and I want to put on record the huge debt of gratitude we owe to the German government and the German people for the support, both moral and material, they have shown our Armed Forces over more than six decades."
The plan will see around £1 billion of the funding go towards 1,900 new houses for service families and accommodation for 7,800 single soldiers. Another £800 million will be spent on infrastructure and refurbishment of bases.