Cathro spent two years working with Portuguese boss Nuno at Rio Ave before following him to Spain last summer and together they guided Valencia to fourth place in La Liga.
The former Dundee United youth coach has long been linked with a move to Ibrox and bookmakers have now installed him as the second favourite to take over at Rangers, behind former Brentford boss Mark Warburton.
Cathro said: "I would like to thank Nuno Espirito Santo for the opportunity to work with him in the top leagues in Portugal and Spain.
"It has been a unique and hugely rewarding experience for an ambitious Scottish coach.
"I wish Valencia the success they deserve. I had an amazing time with a great club in a fantastic city.
"This was a very difficult decision to take and was agreed some time ago."
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