Gray was brought on board by Owls boss Dave Jones in December on an agreement until the end of the season, helping the club secure Championship survival.
And Jones has now taken the decision to hand the experienced former Southampton and Northampton boss a full-time contract.
Gray told Wednesday's official website: "This is a wonderful club and I have really enjoyed the role in the short time I have had at the club so far.
"I got the call from the manager last December to see if I could help out and I was delighted to do so.
"Sometimes another voice, a new voice, can have the desired effect and we have a great bunch of players who listen and respond to what the staff have to say.
"It's all about the future now and everyone is back for pre-season training. The plans have been in place for some time, with everything geared towards August 3 in the Championship against QPR."
- Sports & Recreation