The veteran striker has put an end to an illustrious career as a player after agreeing to take charge of the youngest side of the Rossoneri's youth academy
The decision signals the end of a successful career for the 38-year-old, who had been on the look-out for a new club after parting company with the Rossoneri at the end of last season.
Inzaghi was touted with a move to Championship side Watford earlier in the month, but the Hornets' manager, Gianfranco Zola, quickly dismissed stories linking the club with the Italian.
He will now take charge of Milan's Allievi Nazionali team - the youngest side in the Rossoneri's youth academy - after signing a contract with the Italian giants until 2014.
During his 11-year spell at San Siro, Inzaghi, who cost the club €37 million, scored 125 goals in 296 appearances for the Rossoneri.
The former Italy international is the second-highest scorer in continental competitions with 70 goals, seven goals fewer than Real Madrid legend Raul.