The veteran was a free agent after leaving Birmingham City following the end of last season and had been linked with the Owls. A move to Hillsborough would have reunited him with his former Watford boss Xisco Munoz.
However, he has instead dropped two divisions to make his first step into coaching with Forest Green. He will provide support to Forest Green boss David Horseman, another figure he knows from his Watford days.
Deeney said: “It’s really exciting to be here. I came to the game on Tuesday and got a real sense of what the club is all about. I’ve always kept an eye on Forest Green anyway and have great admiration for the chairman and what the club stands for.
“It’s about the next 10 years, not the next 10 months. This is the start of a new journey and I’m really excited."
Horseman said: “We are absolutely delighted to get a player of Troy’s calibre. Troy brings us an ability to take the ball under pressure and bring others into the game. We know he is a proven goalscorer but also a creator for others.
“He is very much part of our coaching team and we will do everything we can to help him on his coaching journey.”
Forest Green chairman Dale Vince said: “It’s amazing to welcome Troy here, both as a player and as a coach. He’ll be a fantastic addition to us here at FGR and we’re super excited to have him.”