The ex Greek international comes with a high pedigree, having enjoyed playing spells at Anderlecht, Ajax and Sparta Rotterdam, making over 400 appearances.
Manager Brian McDermott told readingfc.co.uk: "Yannis is joining our coaching team and brings great experience. He had a fantastic playing career as well as being coach at a number of top sides across Europe.
"We first met at a Pro License course and he is a good guy, he speaks five languages and is a very positive character to have around the place.
Anastasiou added: "I'm delighted to join Reading and to work with Brian and all the excellent staff. Everything here is great and it's a great environment to improve yourself and get better.
"I met Brian for the first time when we completed our qualifications - and despite his success at Reading he was very humble and very calm. I like him as a person and the atmosphere, mentality and attitude at the club is fantastic."
The 39-year-old joined Panathinaikos as assistant manager in 2008 and went on to work with Ajax's youth and reserve teams before completing his UEFA Pro Licence last year.
Since then he has enjoyed spells at Paris Saint-Germain and Barcelona.