Fonseca retired in June 2005 at the age of 32 after a further four campaigns with Estrela, three of those spent in division two. In the 2003–04 campaign he participated in 15 games as the Lisbon side ranked dead last in the main category, with the subsequent relegation.
Fonseca started coaching immediately after retiring, remaining two years at the helm of Estrela da Amadora's youth team. From 2007 to 2011 he was in charge of several modest teams, notably C.D. Pinhalnovense, which he led to the quarter-finals of the Portuguese Cup in both the 2009–10 and 2010–11 seasons.
However, on 5 March 2014, following a string of poor results that left the club in the third position in the league, nine points behind leaders S.L. Benfica, he was relieved of his duties. Previously, on 12 January, he had stated that Porto would be champions in the last matchday against Benfica.