Rangers boss Stuart McCall says he feels sorry for Gael Bigirimana, but admits he should never have been signed.
Chris Gunter will stay at Reading, after the club took up the option to extend his deal by another year.
Leitch, who came through the Fir Park youth system himself before returning to the club for a second spell as a player in 2000, replaces Gordon Young, who took on a similar role at Sheffield United.
The former Ross County boss rejected the opportunity to manage his hometown club in 2009 when he followed Mark McGhee to Aberdeen to continue working as his assistant.
Leitch told the club's official website: "All through history, this club has always enjoyed a reputation for producing quality footballers and that's something I aim to continue."
Motherwell chief executive Leeann Dempster added: "The youth development department went under a major restructure a little over a year ago and we established the Motherwell Academy at Braidhurst (High School).
"Scott's role will to be take a fresh look at what we've done so far and make improvements if necessary, all with the aim of getting young players from Lanarkshire and beyond through our system and into the first-team squad.
"He is a strong personality who knows this club inside out and has such a strong affinity with the place."