Davies, who played more than 350 times for Bolton as well as being capped by England, will be assisted by ex-Stoke and Bradford player John Dreyer.
Speaking to Southport's club website, Davies said: “I am delighted to be appointed as the new Southport FC Manager. This is a great opportunity and the timing is right for me to step into management.
"Over my 22 year playing career I was privileged to work under some fantastic managers, including four who managed England.
"My career was built on hard work, passion and a strong desire to do whatever it takes to win a game of football.
"There is lots of hard work ahead and it is a challenge that I am relishing. This is a very exciting time to be involved with Southport FC with new investment to develop the stadium and infrastructure.
"Football is about creating memories and I, along with my assistant John Dreyer, players and staff, will be working tirelessly to take the club forward in a positive direction."