The 41-year-old brings an end to his three-year spell in charge at the Kassam Stadium to link up with the Foxes following the full-time appointment of Craig Shakespeare as manager earlier this month.
Shakespeare and Appleton have previously worked together within the academy structure at West Bromwich Albion and will resume their professional partnership when the club return for pre-season training next month.
"I am delighted that the club have been able to bring a coach of Michael's standing to Leicester City. Michael and I worked together at West Bromwich Albion and it quickly became clear that he possessed all the qualities and the integrity required to enjoy a successful coaching career," Shakespeare told the club's official website.
"During his transition from a player to a coach, before later becoming a manager, Michael has already achieved great success in the game. Over the course of his three years at Oxford United, he has been acknowledged by many as one of the most talented and knowledgeable coaches in English football.
"That expertise, as well as his excellent coaching acumen, made him the perfect choice as assistant manager. I am sure that he will be a huge asset to Leicester City as we strive to achieve our objectives over the coming seasons."
Leicester's opening match of the 2017-18 Premier League season comes away to Arsenal on August 12.