The Scot, who made 31 appearances for Coventry between 1989 and 1991, is the reserve team manager at Villa Park and will prepare the team for Saturday's opening Premier League game against West Ham.
He was previously caretaker manager at Leicester for whom he played in 1994.
Martin O'Neill who gave no reasons as to why he quit, issued a statement to the BBC which read: "I have enjoyed my time at Aston Villa immensely. It's obviously a wrench to be leaving such a magnificent club."
"I would like to pay tribute to the Villa players, my coaching staff and the Villa supporters for all the support and encouragement they have given both the club and me personally during my time as manager.
"I wish them all the best for the future. I will obviously be assisting the club in the immediate short-term with regard to the handover of my duties."