Shakespeare was a key figure in Leicester's 2016 title triumph and is the third appointment since the end of the 2019-20 season, following the arrivals of Johan Lange as sporting director and Rob Mackenzie as head of recruitment. He had been coaching at Watford.
"I was keen to add some additional Premier League know-how onto my coaching team and Craig certainly has that in abundance," said Villa manager Dean Smith, who played with Shakespeare at Walsall in the 1980s.
"He's a vastly experienced coach who will add another dimension to our team.. I've known Craig for many years since our Walsall playing days and I'm really looking forward to working with him."