The 43-year-old worked with England for six years but he is the latest coach to leave his post following the 5-0 Ashes defeat in Australia.
His exit follows that of head coach Andy Flower and batting coach Graham Gooch.
"Acting on the recommendation of the coach selection committee, the chairman, Mr Najam Sethi, has appointed former Pakistan leg-spinner Mushtaq Ahmed as the national spin bowling coach with immediate effect," the PCB said in a statement.
"Mushtaq signed the contract with PCB (on) Monday morning and has taken charge of his position."
Mushtaq joins former international team-mate Waqar Younis, who was appointed head coach last week, in the Pakistan set-up.
Mushtaq said that his main task would be to help develop the spinners and play a role in forming a strong support team.
“This Pakistan team has a lot of potential which needs to be realised by the time the World Cup is held (next year),” he told Reuters.
(Writing by Pritha Sarkar, editing by Justin Palmer)
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