"The Revolution requested permission, and we granted it," Dynamo president Chris Canetti said.
Ralston played for the Revolution from 2002-12, appearing 202 times. He featured in the midfield during the team's glory years and remains a fan favorite.
Injuries forced him to retire in 2010 and he began his coaching career immediately thereafter. He is currently in his second year as an assistant to Dynamo head coach Dominic Kinnear.
"The process has begun, and when we're set to name a coach we'll make that announcement," Lizz Summers, New England's director of communications, said.
Ralston is familiar with some players on the roster, but there has been a significant turnover in the Revs' locker room since he left in 2010. He is an attractive candidate for the job because of his experience as a player and coach.
He is Major League Soccer's all-time leader in assists and minutes played. He played for and coached under the league's two most successful coaches of the last decade in Nicol and Kinnear.
Houston is involved in the MLS playoffs, so if Ralston received the Revs' coaching job, he would not be able to accept before Houston finishes the season.
