Southgate, who played 57 times for England, will begin work immediately ahead of the side's qualifiers for the 2015 European U21 Championship next month.
The first qualifier against Moldova takes place in Reading on September 5 before a trip to Finland four days later.
The former Middlesbrough manager will report to the FA's director of elite development, Dan Ashworth.
Southgate was himself the FA's head of elite development between February 2011 and July 2012 and had been earmarked as its technical director before deciding against taking up the post.
He had to apply for the Under-21 role however - the FA initially interviewed 10 candidates.
Southgate said: "I'm delighted to get this role and extremely excited about the prospect of working with the best and brightest young players in the country.
"I'm a proud Englishman and playing for my country was the pinnacle of my playing career.
"Since retiring as a player I have gained a lot of knowledge and experience of the game both here and abroad, and I'm eager to play my part in preparing players to compete at the highest level.
"Whenever any team steps onto the pitch for England, being successful is of huge importance, but it is also about developing a clear style of play that can allow our talented young players to flourish."
England manager Roy Hodgson said: "I know Gareth well and he has the right philosophy and approach to football, and I'm very much looking forward to working with him.
"Having taken the Under-21s earlier this month I'm aware of the talent that exists within the group, so it is a great opportunity looking ahead to the tournament in two years' time."
Ashworth said: "I look forward to working with Gareth. He came through a comprehensive interview process, showing a real understanding of our need to ensure a consistency in the style of play across the England development teams at every level.
"Gareth shares our belief that now is an important moment for English football. It is the time for change and his ideas and experience will be crucial to the direction we wish to take the development teams in the future."