"I am very excited, but also a bit nervous," Dalglish said. "For the boss to put his trust in me is a great compliment and I am coming back as a very lucky person. When you leave a club you don't often have a chance to return, so I am fortunate. Rafa has made a very brave decision to revamp the academy.
"There are lots of positive things happening here and there is a real feel-good factor around the place. Hopefully we can start producing players to challenge for a place in Rafa's plans. It won't happen overnight. There's a lot of work to be done and I will do whatever is asked of me."
Reds manager Rafa Benitez said: "When you talk to Dalglish about players and football systems it's clear he has a lot of experience.
"That's good for the club and young players. We are bringing in new ideas and people - but we're keeping the spirit and the heart."