A Munster statement said O'Connell, 36, would provide "invaluable technical expertise and advice" to the Irish province's next generation of players.
"Every club in the world would love to have an iconic figure such as Paul O'Connell involved in their set-up," said Munster chief Garret Fitzgerald.
O'Connell made 174 Munster appearances and earned 108 Ireland caps.
"As a Limerick native and proud Munster and Irishman who has played and led teams for Munster, Ireland and the Lions, we were very eager to secure his services in some capacity," added Fitzgerald.
"An appointment such as this is a further boost to our academy staff and young players, and to the organisation as a whole."
The Limerick man, who played on three British & Irish Lions tours, was forced to retire from the game in February after being unable to recover from serious hamstring injury sustained at last year's World Cup.
The injury meant that O'Connell was forced to cancel his contract with French club Toulon.
Former Lions captain O'Connell spent 14 seasons at Munster and helped the province win two European Cup titles and three Celtic Leagues.
O'Connell was also part of Ireland's Grand Slam winning team in 2009 and captained his country to successive Six Nations titles in 2014 and 2015.
Munster have appointed former South African international Johan 'Rassie' Erasmus as their Director of Rugby for next season with Anthony Foley's job title remaining as head coach.

The Briton served four double faults when serving for a straight-set win, but won the decider 6-2.
Evans, 25, plays American Bjorn Fratangelo next as he looks to join Andy Murray in the first round proper.
Evans is the last Briton in qualifying after James Ward and Naomi Broady were both beaten in a chilly Melbourne.
Broady was beaten 6-3 2-6 6-3 in round one by French world number 166 Alize Lim, while Ward lost 6-4 7-5 to American Dennis Novikov in round two.
The Australian Open begins on Monday 18 January.

The East Riding of Yorkshire Council refused planning permission for the scheme at North Ferriby, near Hull, in May 2013.
The developer St Modwen appealed to the Secretary of State for Communities and Local Government Greg Clark, who has rejected the plan.
The company said it was disappointed and is considering its options.
The Melton Fields project would have consisted of 510 houses and a care home. The company also applied for permission for an alternative smaller scheme of 390 homes.
Villagers mounted a campaign against the development, with more than 1,200 people writing letters objecting to the plans.
East Riding council rejected both proposals claiming the land had been earmarked for employment rather than residential use.
The developer appealed against the council's decision to the government's Planning Inspectorate, which held a public inquiry last year.
Councillor John Mabbett, vice chairman of North Ferriby Parish Council, described the secretary of state's refusal as "a victory for common sense".
"Had this ill-conceived development been approved our community would have been overwhelmed by its size and the fabric and character of the village would have been harmed for ever," he said.
A spokesperson for St Modwen said: "We firmly believe that our proposals for a residential development represent the most viable option for the site, and for the region.
"Our proposals would not only deliver much needed family homes, but also bring important investment and jobs to the local area."

The bird's head and wings became stuck in the wire fence in Bethesda while it was chasing a wood pigeon.
RSPCA Inspector Mike Pugh, who freed the animal, said: "The buzzard was feisty, but luckily, had not had much feather damage.
"I released the bird back to the wild where he belongs straight away."
Munster great Paul O'Connell will work with the province's academy in a part-time mentoring role over the next year.
[NEXT_CONCEPT]
Dan Evans is one win away from the Australian Open main draw after beating Israel's Amir Weintraub 7-5 6-7 (4-7) 6-2.
[NEXT_CONCEPT]
The government has turned down plans to build more than 500 homes near an East Yorkshire village.
[NEXT_CONCEPT]
A buzzard has been rescued after becoming trapped between fencing and a wall in Gwynedd.