The Rugby Football Union had been in negotiations with Saracens after England coach Stuart Lancaster indicated he wanted Farrell as part of his management team.
Farrell had been seconded to England on an interim basis for the Six Nations and was a key part in transforming the fortunes of the national team.
But England have failed in their bid to lure Farrell away from the Aviva Premiership champions, where he remains under contract for the next two years.
"It has been a special privilege for me to be involved in the Saracens coaching staff for the past two-and-half seasons," Farrell said.
"We have made decent progress during this period but, in truth, as a club, we have barely scratched the surface of our potential.
"The job isn't anywhere near half done, and I have decided I want to help finish the job."
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