Replaced Trevor Morgan, who left the post after just one season in which City finished 9th out of 11 teams in the 2008/09 Premier Reserve League North table.
A goalkeeper in his playing days, Davison was Phil Brown's teammate at Bolton Wanderers.
He joined Hull City for a 10-game loan spell in the 1996/97 season under Terry Dolan in Division Three before leaving Burnden Park permanently to sign for Bradford City. He then went to Grimsby Town followed by Sheffield United, before returning to Bradford and then again to Grimsby.
The former Northern Ireland international finished his career at Colchester in 2008, having played there for four seasons and been goalkeeping coach.
Aged 41, he returned from a spell in Florida to join Brown's coaching staff.