The 47-year-old has been out of work since being sacked by Aston Villa in October 2015 as the Villans unsuccessfully attempted to stave off the threat of relegation from the Premier League.
Sherwood arrives at Swindon with the club languishing in the League One relegation zone following a run of just two wins from their last 12 outings.
Head coach Luke Williams, who signed a new five-year contract in March, will remain in his role at the club despite the presence of Sherwood.
"This is one of the biggest appointments the club has ever made," chairman Lee Power told BBC Wiltshire.
"We're still a bit shocked that we've been able to persuade him to take the role. We're very mindful not to use the title 'manager' - it's not a demotion for Luke Williams. He'll be head coach still. Tim will be running training, alongside [Luke]."
Sherwood added: "I like this club. I've got a soft spot for it. This is a good opportunity for me to get back onto the training field.
"I started this morning. I'll be in the dressing room, I'll be talking to the boys and giving them some words of wisdom. We need everyone on side, to come back through those gates, to help the boys out."
Sherwood's first match at the club will come against Charlton Athletic on Saturday.