Brendan Rodgers needed a new No.2 after Colin Pascoe and Mike Marsh were axed last month.
O'Driscoll, 58, has managerial experience with Bournemouth, Doncaster, Crawley, Nottingham Forest and Bristol City.
He will leave his England post, where he has worked since September, to move to Anfield.
Liverpool academy coach Pep Lijnders will join the first-team staff with talks continuing about a third new coach.
It's the seventh new addition of the summer for Rodgers, after bringing in six new players.
Brazilian star Roberto Firmino tops the bill after completing a £29m move from Hoffenheim.
James Milner, Danny Ings, Adam Bogdan, Joe Gomez and Nathaniel Clyne have also signed.
The majority of Liverpool's squad report back for pre-season training today.
