The 39-year-old will take up a full-time coaching position with the Irish Rugby Football Union (IRFU) on his return from this year's series against the Wallabies.
Sexton won six Test caps for the Lions across the victorious 2013 tour against the Wallabies and the 2017 series draw in New Zealand.
He was coached by Ireland boss Farrell at international level and during his time with the Lions before retiring after the 2023 Rugby World Cup.
"I am hugely excited to continue the next chapter in my coaching journey with the British and Irish Lions and I would like to thank Andy for this incredible opportunity," Sexton said in a statement.
"It promises to be an exciting tour to Australia and I know from experience the challenges that await us.
"Playing for the Lions was a huge ambition of mine during my playing career and my memories of those tours to Australia and New Zealand will stay with me forever."
Sexton joins the Lions management team of Richard Wigglesworth, Simon Easterby, John Dalziel, John Fogarty and Andrew Goodman announced last month.
Head coach Farrell said: "I coached Johnny for the very first time during the 2013 Lions tour to Australia and the love that he had for the British and Irish Lions was reflected in how he operated on a daily basis.
"His influence on that Lions team and that series win, our only win in the last 24 years, should not be underestimated.
"His fight and his dedication as a player is something that he will bring to this Lions tour and I know that the players will relish his experience and expertise alongside all of our assistant coaches."
Since calling time on his distinguished playing career, Sexton has been working in a management position for a glass and metal packaging company.
The former Leinster fly-half - his country's record points scorer, with 1108 in 118 caps - returned to the Ireland camp on a part-time basis in November.
As news of his Lions inclusion was revealed on Thursday morning, the IRFU announced Sexton will become a full-time assistant coach from August 1, working with the various men's and women's national age grade sides up to senior level.
"I am excited to join the IRFU on a full-time basis and am extremely passionate about the opportunity to work with current and future players," he said.
"I've been extremely fortunate to have great coaches, who nurtured and developed my skills, and I am keen to share my experiences with the next generation and help them achieve their goals."
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