The 51-year-old, who ended his playing career in 1998, will work alongside boss Karl Robinson in the new League One season.
"The big thing for me is that Gary has been a manager himself in recent times and he has a great ability to encourage, develop and work with young players," Robinson told the club's official website.
"I believe we have one of the best policies in the country at bringing players through the youth system and the success has come through coaching.
"Gary is a great coach who will work with the first team and younger players to help develop us all and help move the football club forward. He is a very calm character and a good coach who I am looking forward to working alongside."
MK Dons finished last season in eighth position.