"The president of the republic has named Jean-Marc Ayrault as prime minister and tasked him with forming a new government," the Elysee Palace said in a brief statement.
Ayrault is expected to name his government on Wednesday, ahead of its first cabinet session, likely on Thursday.
Like Hollande, 62-year-old Ayrault has never held a senior government post and has little experience in top-level governing, but is a longtime ally of the president.
Ayrault is also a Germanophile and German-language speaker -- skills that should prove useful in building ties with France's powerful neighbour and tackling Hollande's goal of reshaping Europe's economic policies.
Elected in 1977 as mayor of the northwestern town of Saint-Herblain, he has been mayor of Nantes since 1989 and a member of parliament since 1986.
He supported Hollande during the US-style primary that saw him defeat Martine Aubry for the party's nomination and played a prominent role as an advisor to Hollande during his campaign.
In 1997, after he took over as head of the Socialists in parliament, Ayrault was convicted on favouritism charges for having awarded a municipal printing contract in Nantes to a businessman with links to the party.
He was given a six-month suspended sentence and ordered to pay a 30,000 franc (4,500 euro/$5,900) fine, but the conviction was officially wiped from the record in 2007.