The 38-year-old has played 636 games in his career for various clubs including Sheffield United, where he was a team-mate of Cobblers boss Rob Page.
He was released by Rotherham at the end of last campaign, and replaces previous keeper coach Carl Muggleton, who has left Sixfields Stadium.
Kenny's most recent first-team appearance came for Oldham in 2014.
"Coaching is something I always wanted to do when my playing career ended," Kenny told BBC Radio Northampton.
"I've seen it more over the last few years as I've got older and when I'm training I tend to have more input with the younger lads.
"I'm here as goalkeeper coach. With the new (loan) ruling, I'm registered as a player for the absolute worst case scenario.
"The last couple of years I've not had much game-time and it's gradually brought me down and I've got used to it over the last few years."
Find all the latest football transfers on our dedicated page.
Veteran goalkeeper Paddy Kenny has joined newly-promoted League One side Northampton Town as player-coach.