Watson has been given permission by the Blues to link up with the Three Lions.
"Dave is highly rated throughout the game and is well respected by the goalkeepers who have worked with him, importantly Joe Hart," said Hodgson.
"He has worked with a number of current English goalkeepers and has experience of working with England development teams so we know he will fit in well with the squad. I'm personally delighted to have him as part of the England staff at the tournament.
"I'd like to thank everyone at Birmingham City Football Club for agreeing to Dave working at the Euros."
A former England Under-21 international, Watson worked closely with Joe Hart during the current Three Lions' number one's spell on loan with the Blues during the 2009-10 season.
Watson spent his entire playing career at Barnsley but was forced to retire through injury at the age of 28.
He has previously worked with Oldham, Huddersfield, Northampton and Nottingham Forest before joining Birmingham during Alex McLeish's time in charge in 2008.
The move may help to persuade Ben Foster to abandon his self-imposed international exile.
Hodgson is known to want Foster, his goalkeeper at West Brom, as back-up to Hart in Poland and Ukraine this summer and the former Manchester United man developed a close relationship with Watson during his own time at St Andrews.