The 39-year-old made more than 100 appearances for Al Sadd before retiring at the end of the 2018-19 season, three years after joining the club.
Xavi, a World Cup winner in 2010, won eight La Liga titles and four Champions League trophies at Barcelona.
Al Sadd said on Twitter Xavi would replace Jesualdo Ferreira as manager at the start of next season.
After announcing his retirement, Xavi said he was excited to see “what the future holds”.
“What I have achieved in the last two decades has been a privilege,” he said.
“Therefore, I believe it is my duty to take the initiative off the field and return through football whenever possible.”
In a statement released to Spanish news outlet AS , he added: “My philosophy as a coach reflects the style we developed for many years under the influence of Johan Cruyff and La Masia, and that has its greatest exponent in the way of playing football in Barcelona.
“I love seeing teams take the initiative on the field, attack football and return to the essence of what we all love from our childhood days – possession football.”