McMahon joined the club from Tranmere four years ago but is set to become reserve-team manager at Anfield.
"If any Premier League club comes knocking at your door it is something that you have to consider and with it being Liverpool it was a job that I couldn't refuse," he told the club's official website.
"To work with a manager of the quality of Rafa Benitez and an assistant manager like Sammy Lee is brilliant and it's a place where I can continue to learn and develop as a coach and hopefully give them something back.
"Ultimately I would have liked to have left the club with them being promoted but it wasn't the case.
"I've really enjoyed my time with Shrewsbury and the chairman, manager, the staff, players and spectators have been fantastic to me."