The Vanarama National League North club have confirmed their new managerial team with the former York City striker becoming head coach.
He will be assisted by Danny Ellis and Tom Morgan as the club after Russ Wilcox quit last month.
Farsley finished just one place above the relegation places last season.
Donaldson, who signed for the club as a player in May, is aiming high - and is will combine both roles as the club look to push on.
He says he is preparing for this for a few years and the 39-year-old said it’s the perfect time to step up.
“I am absolutely delighted to be appointed head coach at Farsley Celtic and I can’t wait to get started,” he told the club’s website.
“This is something I’ve been working towards in the latter stages of my playing career by doing my coaching badges and being more involved in the management side of things while being at York City and Gainsborough Trinity, where we finished in the play-offs on both occasions.
“Now it’s my turn to take the wheel and steer Farsley Celtic towards a successful future.
“The recruitment has been really good and the squad really excites me so now it’s just a case of getting the best out of them which is something I’m looking forward to doing with my coaching team.”
Chairman Paul Barthorpe said this is the right way forward for the club.
“Following the departure of our manager, we took the decision to change our management structure from the traditional first team manager and assistant manager, to a more progressive and flexible head coach and assistant coach model supported by a director of football,” he said.
“We wanted to appoint a young dynamic management team, with hunger, drive and a real passion for the challenge at Farsley.
“We wanted someone with an extensive contact list in the game and who have the ability to not only attract players but to get the best out of them.
“I am fully confident that we will have a great season on the pitch, and when our fans spend time with the new members of the management team and become reacquainted with the existing ones they will see how this became such an easy decision for us to make!”