The former Posh striker, who resigned as manager of the Shrews last month, takes up the post vacated by Bobby Goulds resignation at Posh earlier this season.
"I am delighted that Jimmy has agreed to come and help me as my new assistant manager," manager Barry Fry told the clubs official website.
"Jim did a fantastic job here as a player and he only left to become manager of Swindon Town. He had the heartache of missing out at Wembley in a play-off final with Reading.
"He is one of the few coaches in the country to have a professional diploma, which is the highest coaching award anyone can be given. I am sure he will have a big impact both on and off the field at London Road."