Granato served as head coach of the Green Bay Gamblers and Wisconsin Capitols of the United States Hockey League (USHL) from 1993 to 1997, where he led the Gamblers to the league finals. He was then hired by the Columbus Chill of the East Coast Hockey League (ECHL) in 1997 and then Peoria Rivermen in 1999. He won the Kelly Cup as a coach in 2000 with the Peoria Rivermen and was then promoted to head coach of the Worcester IceCats of the American Hockey League (AHL). During the 2000–01 AHL season, Granato won the Louis A. R. Pieri Memorial Award as the most outstanding coach of the AHL. After five seasons with the IceCats, he was promoted to an assistant coach with their National Hockey League (NHL) affiliate, the St. Louis Blues. In 2008, he became head coach of the Chicago Wolves of the AHL but was released in 2009 after seven games.

From 2013 to 2016, he was head coach of the USA Hockey National Team Development Program. In March 2016, Granato assumed an assistant coaching position under his brother, Tony, with the Wisconsin Badgers men's ice hockey team. On June 15, 2017, he became an assistant coach, along with Ulf Samuelsson, under Joel Quenneville of the NHL's Chicago Blackhawks.

In 2019, he was hired as an assistant coach of the Buffalo Sabres. On March 17, 2021, Granato became the interim head coach of the Buffalo Sabres, replacing the fired Ralph Krueger. Granato posted a 9—16–3 record in 28 games with the Sabres to finish off the 2020–21 season. The interim tag was removed on June 29 for the 2021–22 season.

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