Ferguson, who made more than 200 appearances for the club across two spells, has been part of the club's much-vaunted Academy and he passed his UEFA 'A' coaching licence last year.
He will start his new role under Martinez on Monday and the Spaniard thinks Ferguson has what it takes to become a manager in the future.
Martinez said: "He's developing into a really exciting coach. He has been working with the first-team on a part-time basis and he's been making a big influence with the work he's been doing with the Under-18s.
"I do feel we need his influence in the first-team environment and we are going to enjoy having Duncan Ferguson here on a permanent post as part of his development.
"He's got the desire and the hard work that is needed. He's in love with the game - that's something that hasn't changed - so he can achieve as much as he wants."
Ferguson told Everton's official website: "Everyone knows what this club and the supporters mean to me and if the manager thinks I can make a contribution, then I am delighted to do so.
"It's a very proud moment for me and it's a dream come true. I am really looking forward to my new role with the first-team and can't wait to work alongside the manager, Graeme Jones and the rest of the lads.
"I must thank Kevin Sheedy and all the coaches at the Academy for the help and support they've given me since I returned to Everton. There's a lot to play for this season, it's exciting times and I am made up to be a part of it."