McDonaugh arrives from Hibernian where he was the youth team coach and helped guide the development of first team players Jordan Forster, Paul Hanlon and Jason Cummings.
“I am looking forward to a fantastic opportunity at Falkirk and can’t wait to get started,” McDonaugh told Falkirk’s official website.
Manager Peter Houston added: “I’m delighted to get someone of James’ quality on board.
"His track-record as a coach speaks for itself, having brought some very high-profile Hibs youngsters through their Academy system.
"He comes highly-recommended and will be a terrific asset to Falkirk FC. I am really looking forward to working with him.”