Mellon was placed in temporary charge of the Reds following David Flitcroft's sacking at the end of last month and was given the opportunity to make the job his own on a permanent basis.
He took four points from his three games, but following the 1-1 draw against fellow strugglers Yeovil on Saturday, the Barnsley board moved to appoint former Barnsley boss Wilson, who famously steered the Reds to the Premier League in 1997.
Wilson was keen to keep former Fleetwood boss Mellon on board and expects him to have a huge impact.
"Retaining Micky as an assistant manager is going to be absolutely paramount from our point of view," Wilson said after being unveiled on Tuesday afternoon.
"He's going to be a great help. His experience and his knowledge, certainly of the players, is going to be paramount in us going forward.
"I'm delighted he's going to stay.
"We've got off to a very good start, we had a good chat for a few hours, so let's hope we can transfer that to the players."
Wilson will take charge of his first game since returning to Oakwell at Leeds on Saturday.