The 37-year-old American will take the reins in 2026.
He assisted head coach Mike Kelly this year and will step up to the top job.
Sparrow hails from Pennsylvania and played for Albright College.
The former guard has developed a reputation as a tough defensive guru and has worked all over, from Africa to Mexico.
In his younger days, players would hire him to play defence against them.
"I still think I could play a little one-on-one, but I’m getting older," he said.
"But, yeah, I’m known for teaching how to rotate and how to stay in front of the basketball. That is kind of my baby."
Since 2017, he has been travelling to Australia for work, and he popped up in Dunedin last season.
The Nuggets struggled, posting just three wins from 20 games. Defensively, they were poor.
But Sparrow is looking forward to changing that defensive record in what will be his first stint as a head coach at the elite level.
"It is exciting. I’m ready to go.
"No matter where you go, the core skills stay the same. I’m looking for guys who want to be active and who will box out every play.
"As much as we lost last year, he [Mike Kelly] had a great perspective on it, and I thought we did grow as a group.
"Mike was always chipping away at getting better, and that is something I appreciate Mike for.
"I was struggling with it mightily, but he was great about it."
Sparrow is based in Melbourne and is working with a community club.
He will arrive in Dunedin in March to prepare the Nuggets for the season.
"I came in five or six games in last season and you can’t really put your personality on the team the way you want to.
"It took me time, and by then you are midway through the season.
"We will certainly look different from a defensive standpoint. I have a match-up zone that I run that most people don’t run, and that makes us unique.
"So it is about installing that and, more importantly, recruiting towards that.
"That will make a big difference. We will definitely be a high-octane, ball-pressure team."
Sparrow said he was "waist-deep" in the recruiting process.
"The benefit of being in Melbourne is I’m able to catch up with guys [in the ANBL] and I’ve been able to talk to agents and players. In that regard, it has been brilliant.
"We are shaping up well right now."
Otago Nuggets general manager Angela Ruske said Sparrow did a "fantastic job around player development" and he had the respect of the players.
"I had a chat with the leadership group from the local players in the Nuggets group and a couple of the imports, and they all thought that he was ready for that head coach role and would be a good person to have in our camp," Ruske said.
"So, yeah, I've been very impressed with what I've seen both on the sideline, off court, on court, in the community as well, and I think he's a very good fit."
Kelly has secured a coaching job in China.
