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The role reunites Magilton with Northern Ireland manager Michael O'Neill, having briefly worked as his assistant at Shamrock Rovers.
Magilton had originally applied for the manager's job when Nigel Worthington resigned at the end of 2011 and, although the Irish Football Association preferred O'Neill, it has kept in close contact with Magilton.
The IFA has given Magilton a four-year deal in a role that will see him "be responsible for elite player development for boys and girls" as well as "drive on the identification and development of talented young players".
The 44-year-old, who won 52 caps for the country, begins work on July 1. His brief is to find and develop Northern Ireland-qualified young players, as well as oversee a coach development programme.
Tackling the issue of eligible players using a FIFA ruling to declare for the Republic of Ireland has been a feature of O'Neill's tenure and Magilton will now share that burden.
The former Ipswich and QPR manager will also work with Under-21 boss Stephen Robinson, Under-19 coach Stephen Craigan and Alfie Wylie, who manages the women's team.
"I am very pleased and indeed honoured to have been offered this opportunity to join the Irish Football Association as elite performance director," said Magilton.
"Player identification and development is a key part of the modern game and I am looking forward to getting started in my new role and to working with all the young players in Northern Ireland.
"We must work collectively and strategically to ensure we cultivate the most talented players - both boys and girls - at all age groups in Northern Ireland and I believe that by doing this we can create a talent pipeline which will help to build successful and sustainable international squads of the future."
O'Neill welcomed the news, adding: "I would like to take this opportunity to welcome Jim on board.
"I have known Jim for over 20 years and I know that he will be a huge asset to the Irish Football Association.
"His experience as a player and a coach along with his knowledge and his ability to manage and implement coaching structures, will ensure that all our elite young players are identified and developed and in turn will bring through generations of international players for all our national teams."
IFA president Jim Shaw believes the new structure at Windsor Avenue will help build a bright future for Northern Irish football.
"I am delighted to announce the appointment of Jim Magilton as the Irish FA's first ever elite performance director," he said.
"This role is fundamental to the development of football in Northern Ireland and I believe we have found the right person to oversee the identification and development of all our elite young players.
"I also believe that this appointment highlights the Irish FA's commitment to elite player development and it is about laying the foundations for the next generations of Northern Ireland internationals."