Neville retired from professional football in February 2011 having won 85 caps for England, as well as eight Premier League titles with United, and has carved out a very successful career as a Sky Sports pundit this season.
However, he has now accepted the opportunity to join up with England's new manager ahead of the Euro 2012 finals this summer, signing a four-year deal with the Football Association.
Hodgson told the FA website: "Gary has achieved so much in the game as a player with Manchester United and England.
"He has obtained UEFA coaching qualifications and will be tremendously respected by the players because of his vast experience as a player.
"At my first meeting with The FA, I explained that Gary was someone I wanted as part of my staff. I think it is very important we have a younger coach who knows the dressing room and is very experienced at international level.
"That he has represented England as a player at five major finals tournaments will make him an invaluable member of staff."
Neville - who represented England at five major tournaments spanning Euro 96 and the 2006 World Cup - has obtained the UEFA A and B licences and joins fellow new appointees in goalkeeping coach Dave Watson and coach Ray Lewington in joining Hodgson's team.
Neville said: "Roy asking me to be a part of his staff and to work with the national team is not only an honour but a very special moment for me.
"I had absolutely no hesitation in accepting this role and I am relishing the opportunity to work alongside Roy and the team at the Euros and through to the next two tournaments."