The 49-year-old French-born creator is one of fashion's biggest and most enigmatic names, and his future has been surrounded by speculation since he walked away from Saint Laurent last year.
The luxury giant LVMH, which owns Celine, has given Slimane complete control of the brand's images and creative side in order to sign him up — a concession which put him alongside Chanel's Karl Lagerfeld as one of the most powerful designers in fashion.
They are also letting him create a menswear line at the label, which up until now only made clothes for women.
Announcing the surprise appointment, Bernard Arnault, the owner of LVMH, said: “He is one of the most talented designers of our time.”
“Hedi will oversee and develop all creativity for both women's and men's fashion, but also for leather goods, accessories and fragrances,” he added.
Lagerfeld, who famously shed 41 kilos (90 pounds) in order to squeeze into Slimane's skinny jeans, was the first to cheer the news.
“I am enchanted, what a great choice,” he told Women's Wear Daily. “It will be great.”
Friend of the stars
Like Lagerfeld, Slimane is a renowned photographer, and he has spent the last few years living in Los Angeles, where he had moved his studio at the end of his reign at Saint Laurent.
The designer drew much of his inspiration from the LA rock scene, which he tirelessly documented with his photographs.
Intensely private, he nonetheless has struck up close friendships with many A-listers including pop star Lady Gaga.
AFP understands that he will continue to live in the city while he designs for Celine, and start work within 10 days.
Slimane borrowed many of the elements of his grungy, androgynous look from the world of rock, with his skinny style initially influenced by British indie bands like Franz Ferdinand and The Libertines.
The Libertines bohemian frontman Peter Doherty became a friend and muse, and figured prominently in his 2006 photo book, “London Birth of a Cult”.
'The Sultan of skinny'
Arnault said Slimane will use his “global vision and unique aesthetic virtuosity in further building an iconic French fashion house.”
“I am delighted to join Bernard Arnault in this all-embracing and fascinating mission for Celine,” Slimane said. “I greatly look forward to returning to the exciting world of fashion and the dynamism of the ateliers.”
Slimane will also be reunited at Celine with Sidney Toledano, one of fashion's most influential backroom figures. The pair were a formidable team at Dior where Slimane was a huge trendsetter until his departure in 2012.
Dubbed the “Sultan of skinny”, Slimane designed for the late rock star David Bowie, with his skinny silhouette dominating men's style for more than a decade.
He takes over at Celine from the highly-rated British designer Phoebe Philo who quit last month after a decade at the helm.
She had created a cult following at the label for her hip minimalist and very modernist style.
Philo had also lately embraced the oversized trend which Slimane is credited with kickstarting at Saint Laurent with his long gorilla-sleeved jackets.
Many had talked of Philo as a possible successor for Lagerfeld at Chanel, despite there being little sign that the 84-year old is ready to surrender his scissors.
While his designs have made big-name brands many millions, Slimane's origins are far from the bright lights. He was born in a working-class district of the French capital to a Tunisian father and Italian mother, who worked as a dressmaker.
He first wanted to be a journalist before slipping into fashion after he became an assistant to Jean-Jacques Picart, one of the founders of the haute couture house Christian Lacroix.
Celine, which has a turnover just shy of €1 billion euros, was founded by Celine Vipiana in Paris just after World War 2.
By AFP's Fiachra Gibbons