Birmingham have found a successor to Tony Mowbray, who stood down in May to recover from illness, and an announcement is expected soon.
The Blues were relegated to League One on the final day of the 2023-24 campaign and will play third-tier football next term for the first time in 29 years.
Davies worked in the backroom staff of Brendan Rodgers at Swansea, Liverpool, Leicester and Celtic before making the move to Tottenham under Postecoglou.
The Swans failed with an approach to make him their new manager in December 2023, but he has now decided the time is right to make the step into management.
The Midlands club have announced their retained list following the conclusion of the 2023-24 campaign.
Neil Etheridge, Gary Gardner, Scott Hogan, Marc Roberts and Ivan Sunjic have all been released following relegation, while new contracts have been offered to Lukas Jutkiewicz and John Ruddy.
The 39-year-old coach has been a man in demand this season and already turned down the chance to become Swansea City boss midway through the campaign in order to continue working with Postecoglou and the Spurs coaching staff.
Now with the season over, Tottenham gave permission for Davies to speak to Birmingham and the young coach has agreed to a four-year deal after the two clubs agreed compensation.