The 41-year-old Frenchman, who had been Belgium’s assistant manager, began his professional career at Monaco and helped them win Ligue 1 in 1997.
“I am very happy to come back to Monaco and extremely determined to meet the challenges ahead,” Henry said.
“I cannot wait to meet the players to start working together.”
Henry is Arsenal’s record goalscorer and also played for Juventus, Barcelona and New York Red Bulls.