The 64-year-old Swede had been linked to the Bavarian club, which shares the Allianz Arena with German powerhouse Bayern Munich, after watching three games live in December.
A seven-hour meeting of the club's supervisory board, which finished in the early hours of Tuesday morning, led to 1860 Munich's confirmation that Eriksson would join their staff to work with current coach Alexander Schmidt.
The appointment of Eriksson, who coached England from 2001 until 2006, is part of a three-year plan to get the Bavarian team back into the Bundesliga following relegation in 2004.
The club's Jordanian investor Hasan Ismaik had wanted Erikkson appointed as head coach but a compromise was reached for the Swede to work alongside Schmidt, who took charge in November.
"We will now be getting the money for the three-year plan so that we can use it to continue our work seamlessly," said 1860's president Dieter Schneider after the board unanimously agreed on Ismaik's compromise plan.
"The only loser would have been the club."
The new coaching team's responsibilities have yet to be decided, Schneider said, adding that chief executive Robert Schaefer will speak to both men in the coming days.
Schmidt is currently with the squad in Turkey at a winter training camp: 1860 are sixth in the second Bundesliga and their next league match is not until February 4.
Eriksson had been working with Thai club Tero Sasana and his lengthy resume of former clubs includes Benfica, Roma, Fiorentina, Sampdoria, Lazio and Manchester City.
As well as having coached England, he has also managed the national teams of Mexico (2008-09) and Ivory Coast (2010).
Schmidt, 44, was previously the club's under-21 coach and only took charge of the first team on November 17 after Reiner Maurer was sacked.