After retiring at the end of 2009, the club's leading goalkicker will rejoin the Bombers next week in the part-time specialist role.
Lloyd was unofficially approached last year to take on the role but declined. He now returns to work closely with their group of key forwards.
"It is great to be back at Essendon, it's obviously a place where I spent a large portion of my life," Lloyd said in a statement.
"Goal kicking is clearly a crucial part of the game and a skill that is constantly under the spotlight, and the specialist coaching role is an opportunity that I hope will benefit the club's young forwards."
Lloyd said when he decided to start his coaching career he wrote a document highlighting the importance of goalkicking and sent it to a number of AFL coaches.
He spoke with St Kilda's Alan Richardson and Collingwood coach Nathan Buckley before getting in touch with Essendon's football manager Neil Craig about a role at Essendon.
He will join his 2000 premiership teammate James Hird on the club's coaching panel.
Lloyd kicked 926 goals for the Bombers in 270 games between 1995-2009 and won the Coleman Medal three times.
The 36-year-old will work closely with young forward Joe Daniher, who he has previously mentored in his role with the AIS-AFL Academy as an assistant coach.
"The club has some very talented young forwards, they are natural competitors and have a real hunger to learn, and my role will be to work closely with them on developing and improving their goalkicking techniques and skills set," he said.
Hird, who passed on the Essendon captaincy to Lloyd in 2006, described the appointment as a "natural fit".
"I have no doubt Lloydy will assist us in developing and moulding the methods and skills sets of our forwards, and I know the players are also looking forward to tapping into his experience and knowledge," Hird said.
The club will be boosted by Lloyd's presence, particularly after its poor run in front of goal last season. Its conversion (57.8 per cent) ranked as the 15th worst in the competition.
The Bombers employed a renowned goalkicking guru, Ben Perkins, in the middle of 2012, and he had an immediate impact in helping Michael Hurley with his set shots.
Despite his success, Perkins' contract was not renewed for 2013.
Matthew Lloyd and James Hird celebrate a win in 2004. Picture: AFL Media