Vieira won the World Cup and European Championship, four Serie A titles with Inter Milan and three Premier League titles with Arsenal, as well as five FA Cups - four with the London side and last season's Wembley triumph with City.
He will work closely with City's youngsters and be an ambassador for the club.
In a video message on the club's website, he said: "Yes this is the end of my playing career, but this role is a fantastic new challenge for me.
"I have a lot to learn about the non-playing areas of the business but there are many very experienced people here for me to learn from and I am confident that I can make a significant contribution to the club's ongoing success."
Vieira enjoyed an Indian summer at the end of his glittering career, joining City 18 months ago when he became Roberto Mancini's first signing.
City, the world's richest club thanks to owner Sheikh Mansour of Abu Dhabi, won the FA Cup in May, their first trophy for 35 years, and will be in the Champions League for the first time next season after finishing third in the Premier League.
City's chief operations officer Brian Marwood said: "His contribution to world football during his time as a player was extraordinary and he will be remembered as one of the greatest players to grace the Premier League.
"Whilst it is sad to see Patrick's playing career come to an end, we are delighted that he has chosen to extend his time with Manchester City in this new capacity."
Although he was born in Senegal, Vieira moved to France at an early age and played 107 times for Les Blues, including a substitute appearance in the 1998 final when France won the World Cup by beating Brazil 3-0 in Paris.
He was also in the side that won the European Championship two years later against Italy.
Although charming and erudite off the field, Vieira was a tough competitor on the pitch and was sent off 10 times in nine years at Arsenal.
