Smith, 31, has been working with head coach Justin Burnell and assistant coach Gordon Ross on a trial basis for a number of months, but the club have now confirmed the role has been made permanent.
Smith was backs coach at Esher in 2011/12 and head coach the following season, guiding them to a second place finish in National League One.
At London Welsh, Smith will be responsible for the club's defence as well as helping to develop player core skills.
"To get the opportunity to come to London Welsh and work with a team that's really striving to get back into the Premiership is very exciting,” said Smith.
"It's great to be able to have players day in, day out, and be able to drag them to one side for a chat. I like the fact that I can sit down and work with individuals, and that's a real plus to being in a full-time environment.
"I'm still very new to coaching but I've been lucky to play at some very successful teams and have some great achievements, and for me it's now about passing that knowledge on.”
Head coach Justin Burnell said: "Ollie's rugby knowledge and coaching techniques are second to none, so from a head coach's point of view to have Ollie and Gordon is a massive statement of intent from London Welsh.”
Smith won Heineken Cup and Premiership honours with Leicester and had spells with Montpellier and Harlequins before being forced to retire after a serious knee injury in 2010. Capped five times by England, he toured New Zealand with the British & Irish Lions in 2005.