The former France captain will take charge of the Spanish capital club's reserve side next season, putting an end to reports suggesting he was due to join former club Bordeaux.
After spending a year as Carlo Ancelotti’s first-team assistant last term – a season in which the France great helped steer the side to its 10th Champions League crown – the former Blancos icon will now take on his first coaching role with the club’s reserve team.
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"Zinedine Zidane will manage Castilla next season," a statement on Real's official website read.
"Zizou, who was Carlo Ancelotti’s first[team] squad assistant coach this year, will start a new stage of his career at Real Madrid."
The 42-year-old will be joined by youth coach Santiago Sanchez with Real confirming that Zidance "has already started working on future plans for the reserve team squad."
The news puts an end to rumors that Zidane was going to take on his first role as a head coach with former side, Bordeaux, in Ligue 1 next season.
Zidane will be expected to guide Castilla back into the second division of the Spanish league after the side was relegated following a 1-0 loss to Real Murcia in June.
Zidane played for the likes of Juventus as well as Madrid in an illustrious club career and also tasted success on the international stage, where he won the World Cup with France on home soil in 1998 before capturing the European championship two years later.