The 47-year-old spent almost seven years with the Light Blues between 1993 and 2000, scoring 58 times in 171 appearances.
Most famously, his hat-trick helped defeat Hearts 5-1 in the 1996 Scottish Cup final at Hampden, with Brian Laudrup assisting him each time and scoring twice himself.
Durie had moved into coaching with East Fife and was appointed as assistant manager there in 2010 before taking charge himself last year.
Indeed, he was on the touchline at Ibrox last August as the New Bayview outfit was beaten 4-0 by Gers in the first round of the League Cup.
Durie later had to step down from his position in November because of ill health but is well again and began working at Murray Park this week.
His move back to the Ibrox outfit follows the weekend announcement that new head of sports science Jim Henry has also joined the 54-times Scottish champions.
There had been a gap in the coaching staff after Tommy Wilson left in February to work with MLS side Philadelphia Union.
Durie’s arrival means he will work closely with youth coach Billy Kirkwood in the months ahead.
Manager Ally McCoist told RangersTV: “Everybody got a bit of a fright when Gordon was unwell not so long ago but thankfully he has been given the all-clear and he’s in fine fettle.
“He’s coming in to take the under-20s and the reserves with Kirky and hopefully with the numbers we’ll have, we can get some games arranged against quality opposition.
“I’d be very, very hopeful we can organise friendlies with teams from down south and maybe even take the boys on the road if need be.
“It’s important the lads are kept ticking over and Gordon will play a big part in that. We lost Tommy earlier this year and Alan Kernaghan left not so long ago so it’s good to fill that gap.
“We’ve been down on numbers and it was high time we got a replacement. We’re delighted with who we’ve got and Gordon has fitted in exceptionally well in his first couple of days.”
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