The Italian government has approved a successor to former Bank of Italy Governor Antonio Fazio, who resigned following a banking scandal.
Mr Draghi will serve a six year term
The Central Bank has chosen Mario Draghi as the new governor, a decision approved by Italy's cabinet.
Mr Fazio stepped down after prosecutors decided to investigate his role in a controversial bank takeover.
Mr Draghi, managing director of investment bank Goldman Sachs, will serve a six-year term.
Silvio Berlusconi's government changed the law last week to limit the governor's term of office, after criticism that Mr Fazio had been appointed for life.
Mr Fazio stepped down 10 days ago after months of criticism about his handling of a controversial takeover battle.
Mr Fazio has denied he abused his office during the attempted takeover of Banca Antonveneta by rival Banca Popolare Italiana earlier this year.
However, critics claimed that Mr Fazio had unduly favoured Banca Popolare's bid ahead of that of Dutch rival ABN Amro and that his actions had tarnished the credibility of Italy's banking system.
Prosecutors are investigating alleged fraud and insider trading in relation to the acquisition of shares in Banca Antonveneta.
Mr Draghi, 58, currently works in London for Goldman Sachs although he has held senior governmental roles in Italy before.
During the 1990s, he led Italy's privatisation programme as director-general of the Treasury.
The Fazio affair has damaged Italy's banking system
Analysts say Mr Draghi is well-respected, but has a tricky task on his hands to restore faith in the transparency of Italy's banking system.
"Draghi has a tough job to restore the Bank of Italy's credibility, but he is appreciated internationally and has done a lot of jobs and done them well," said Luigi Speranza, an economist with BNP Paribas.
Lorenzo Codogno, an economist with Bank of America, said the appointment would be popular with foreign investors, whose access to Italy's financial markets has been limited.
"His appointment should lead to a more open Italian bank market which will, in the end, mean Italians have to pay less for their bank services," he said.
The government has moved to dilute the Bank of Italy's powers in the wake of the Fazio affair after claims that the governor had too much power and was not sufficiently accountable.
As well as changing the governor's term of office, some of the bank's regulatory powers have been transferred to Italy's competition regulator.