Chancelor George Osborne made the announcement to the House of Commons this afternoon.
Carney is the eighth and current governor of the Bank of Canada and the Chairman of the Financial Stability Board, an institution of the G20 based in Basel, Switzerland.
Carney achieved these positions by working his way up the ranks of Goldman Sachs, the Canadian Department of Finance, and the Bank of Canada as Deputy Governor.
Carney has been credited with shielding Canada from the worst effects of the late-2000s financial crisis, and has earned recognition by the Financial Times and TIME magazine as a top figure in the financial world.
Carney will take over from Mervyn King in June 2013.
Other candidates included Bank deputy governor Paul Tucker, FSA chairman Lord Turner, Sir John Vickers, who led the government's recent review into breaking up the banks, and Santander bank's UK chairman Lord Burns.
Carney will have to integrate the FSA and banking supervision into the central bank, perhaps making hime the most influential unelected voice in Britain.
Once new legislation is finalised, the BoE will have responsibility for controlling demand and inflation in the economy, the stability of the financial system and the health of individual banks and insurance companies.
Mr Osborne told Parliament that Mr Carney, 47, brought the "strong leadership and external experience the Bank needs" and added that the Canadian would apply for British citizenship.
Mr Carney said he was "honoured to accept this important and demanding role" at a "critical time for the British, European and global economies".
The chancellor said Mr Carney would be paid a salary and pension package "broadly equivalent" to that of the outgoing governor.
Sir Mervyn is paid £305,000 a year but also benefits from a very generous pension scheme.
Sir Mervyn King said: "I am delighted to welcome Mark Carney as my successor. He represents a new generation of leadership for the Bank of England, and is an outstanding choice to succeed me.
"Since Mark became Governor of the Bank of Canada, I have worked closely with him and admired his contributions to the world of central banking, in which he is widely respected."
The Chairman of Court, Sir David Lees, said: "On behalf of the Court of the Bank of England I congratulate Mark Carney on his appointment as the next Governor of the Bank. His reputation as an outstanding central bank Governor goes before him and Court very much look forward to working with him when he joins us next July.
"The Queen has also approved the reappointment of Charles Bean as Deputy Governor of the Bank of England for Monetary Policy from 1 July 2013. Mr Bean has agreed to stay on for a year to help oversee the extension of the Bank of England's responsibilities and the transition to the new Governor. He has asked to stand down on 30 June 2014."
What the Bookies are saying
* Carney will authorise a larger volume of QE than Mervyn King 8/1
* Interest rates will rise above 2.5pc in Carney’s first year 4/1
* UK base rate to rise above 7.5pc in Carney’s first year 25/1
