He replaces Lee Baker, who stood down at the end of last season after guiding the Riversiders to seventh place in their first Hallmark Security First Division North season.
Payton, who played for clubs including Hull City, Middlesbrough, Celtic and Burnley, has had coaching spells at Colne, Padiham and Northwich Victoria.
Riversiders chairman Adrian Wilding said: “This is a great day for the football club, the club sponsors, our supporters and players, having secured the services of a highly motivated, hugely respected, standout coach who will be able to build on the progress of recent seasons and drive the club forward.”
Payton, who holds a UEFA ‘A’ coaching qualification, added: “I am excited at the prospect of joining such a progressive and successful football club and I will be looking forward to working with the strong playing squad already in place.
“My objective is to build on the club’s excellent debut season last year in the Hallmark Security League and push Garstang FC on to the next level.”
The remainder of Payton’s management team will be announced in due course.