Royle was the last manager to guide the Toffees to silverware, when his side won the FA Cup against Manchester United in 1995.
"It's coming home and another phase in my Everton lifetime," Royle told the club's official website. "I've stood on the terraces, been a player and a manager here.
"Now I'm working with the Academy and with Roberto, [chief scout] Kevin Reeves and [Under-21s coach] David Unsworth to look at the futures of those who are hopefully going to be Everton players.
"I'm excited. It's a role that I first spoke to Roberto about last January. It's taken this time for the role to develop and I'm rather pleased to back."
Royle also played for Everton between 1966 and 1974.