He will remain with Premier League champions Leicester, where he works under Claudio Ranieri.
“This is a huge honour for me,” Shakespeare told the FA website (www.theFa.com).
“Anyone involved in football knows that representing your country is something special and this caps off a brilliant year.”
“Craig will be a tremendous asset to England, and I am grateful to Leicester for their help in making this happen,” Allardyce said.
“Players respect him, and his achievement this past season means we will be getting someone who has a strong winning mentality.”
The FA has already appointed former Liverpool midfielder Sammy Lee as assistant manager.
The new coaching team’s first match is a World Cup qualifying game away to Slovakia on September 4.