Mussels moved quickly to replace departing boss Bryan O'Toole, who took the decision to resign from his role last Monday.
Donnelly, 69, has a wealth of managerial experience at both Ryman League and Southern Combination League level - something that will prove crucial next season.
Mussels, who finished second in the SCFL Premier Division under O'Toole's stewardship, could still be promoted as champions with league winners Haywards Heath Town awaiting punishment following an FA charge for fielding a player while under a 'sine die' suspension.
A points deduction could well see Shoreham leapfrog Heath and handed the Premier Division title, plus promotion with it.
Despite the uncertainty surrounding Shoreham at present, Donnelly had no hesitation in agreeing to a return.
He said: "I've been managing the under-21's for the past few months and helped Bryan on matchdays. It's a club that is close to my heart and is near to my home.
"I think Bryan, the team and committee members deserve a huge amount of credit for all they've done over the past season.
"They all did the work to give the club a chance of promotion. We still don't know what league we will be playing in yet but I'm excited to be back, whatever division we are in next season."
Donnelly has managed Worthing, Lewes and Three Bridges at Ryman League level previously, while also having a wealth of SCFL experience in charge of teams across Sussex.
Should Shoreham gain promotion, it will be the first-time they have ever reached the Ryman League and Donnelly feels it's important to work within budget.
He added: "My time with the under-21's has opened my eyes to the talent and ability of the youngsters at this club. Whether we are promoted or not, I want to give youth a chance here at Shoreham.
"I don't want this club to get into financial difficulty should we get promoted into the Ryman League. It's about working to budget and giving youth a chance at a higher level."
Having worked closely with O'Toole and his squad this season, Donnelly hopes the bulk of the team remain next season - no matter what division they are in.
He said: "I've spoken to a few of the players but it is proving quite tricky at the moment not knowing what league we will be in.
"A few may move on but I do hope to keep the bulk of the squad here at Shoreham."
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