The 43-year-old, who spent two years at St Andrews as a player, will oversee the club's development squad.
He had a similar role at Brentford, where he also had a spell as interim boss, and more recently has been in charge of Manchester City's Under-18s.
Richard Beale, who has the title of senior professional development coach, will stay on and assist Carsley, the Championship club have announced.
Lee Carsley has returned to Birmingham as head professional development coach.