Neville, 36, retired from football at the start of 2011 after a stellar playing career that saw him pick up 15 major trophies at United and win 83 caps with England.
He professed to being "thrilled" at joining Sky Sports as a pundit from the start of the 2011/12 season. The appointment follows Neville's appearance last month in the Sky Sports studio for the Euro 2012 Qualifier between Wales and England
In a statement, the former right-back said: "[Sky] has always been leading the way in football coverage. Now I have retired this feels like the perfect way for me to stay involved in football and I am looking forward to bringing my 19 years of match experience into television."
Sky Sports managing director Barney Francis added: "Gary will bring vast experience at the top level of domestic and European football from nearly two decades with Manchester United.
"He will give our viewers great insight when he joins our team next season working on Barclays Premier League, UEFA Champions League and Carling Cup football."
Neville will act as a replacement for Andy Gray, who was embroiled in a scandal earlier in the year alongside former Sky Sports anchorman Richard Keys after sexist comments they made off-air were leaked onto the internet.
Gray was sacked for the ensuing controversy, while Keys later opted to resign from his post. Both men have since joined the UTV Media-owned radio station TalkSport.