The new Scottish Liberal Democrat leader has been given Jim Wallace's role as enterprise minister in a cabinet reshuffle.
Mr Stephen has become Mr McConnell's new deputy
Nicol Stephen will take on his predecessor's post while Tavish Scott is promoted to transport minister.
Mr Scott was previously deputy finance minister and master-minded Mr Stephen's leadership campaign.
Mr Scott's old job will be filled by ministerial newcomer George Lyon, the Lib Dems' chief whip.
Robert Brown, the party's spokesman on education, becomes the deputy education minister.
He succeeds Euan Robson, the only casualty of the reshuffle, who is to return to the backbenches.
Ross Finnie remains in charge of agriculture and rural development.
The reshuffle also sees two of Labour's deputy ministers swapping jobs.
Rhona Brankin moves over from the deputy health minister slot to become deputy environment and rural affairs minister.
She succeeds Lewis Macdonald - who takes her old job at health.
Mr Stephen said the new Liberal Democrat team brought with it energy, experience and ability to ministerial office.
He said: "They are all outstanding in their own respective roles.
"They have been Liberal Democrats for a long time, well known to members of the party.
"I'm determined now that we build the team, that we work from here with great determination towards the 2007 election and these are going to be the core people who are going to be out there campaigning for the party."
He said the new team would focus on the party's future with the emphasis on new policies relating to young people.
"The second area is being determined to win in new parts of Scotland," he said.
"At the last set of elections we came second in 15 seats as well as winning 11.
"We are in a very strong position in Scotland and I believe it's going to be a very exciting time for the party."
Tavish Scott is the new transport minister
Mr Stephen dodged direct questions on whether the party was now gunning for Labour at the next Scottish elections, saying only that he was determined the party built on its success.
He said: "It's very important that as a party we always try and punch above our weight and I believe that we've got a group of people, not only in the parliamentary party, but now in the ministerial team who can do exactly that."
Commenting on his appointment, Mr Scott said: "I'm very honoured to be given this immense challenge of taking forward transport policy in Scotland.
"The big challenge is about how we deliver transport, particularly big transport projects, and I'm looking forward to getting right into that brief."
He said the new deputy first minister would bring "a fresh and exciting" dimension to politics.
Jack McConnell said it would be "a pleasure" to work with Mr Stephen.
The first minister added: "I think he and I worked extremely well when I was education minister and he was deputy."
Scottish Conservative leader David McLetchie said: "I repeat the challenge I set Nicol Stephen last week.
"If he is serious about cutting business rates and if he truly has any influence in the coalition then he will do it now.
"He is ideally placed as enterprise minister and deputy first minister and the coming weeks will show whether he is up to the job or whether this has merely been another rearranging of the ministerial deckchairs."