The cabinet, headed by Mbeki, for his second and final term, also includes more women.
New opposition faces joined the team to steer South Africa into a second decade of democracy and help the ruling African National Congress (ANC) deliver its promises after a landslide poll win this month.
Deputy President Jacob Zuma, whose fate had been the focus of intense speculation following his investigation over an arms deal scandal, survived the cabinet shakeup.
Zuma played a key role in winning South Africa's most populous province of KwaZulu-Natal for the ANC for the first time.
IFP leader ousted
A key departure from the cabinet is former Home Affairs Minister Mangosuthu Buthelezi, leader of the Zulu-based opposition Inkatha Freedom Party (IFP). His appointment had been part of a deal that ended bloody feuding between the ANC and the IFP which killed thousands in the early 1990s.
The IFP had said it would contest the results of this year's election in the courts but dropped its protest on Monday.
Buthelezi (R) bids goodbye to his
post as Home Affairs minister
Trevor Manuel, 48, stays as trusted finance minister, as widely expected. He is credited with spearheading market-friendly policies which have won the continent's biggest economy respect from global investors following the demise of apartheid in 1994.
Also retained is Foreign Minister Nkosazana Dlamini-Zuma, a close Mbeki confidante who has played a leading role in South Africa's pan-Africanist foreign policy.
She will be supported this time by two deputies in a sign Mbeki intends to pursue an even more vigorous foreign policy.
Nats leader drafted
Mbeki named New National Party leader Marthinus van Schalkwyk, who led the former pro-apartheid party into a humiliating defeat in the April elections with just two percent of the vote, as South Africa's new minister of environment and tourism.
A surprise survivor of the reshuffle was Health Minister Manto Tshabalala-Msimang. She has been singled out for criticism over the Mbeki government's slow response to the country's HIV/AIDS crisis affecting about one in nine people.
Kader Asmal, the former education minister is said to have requested to be relieved of his duties. He is replaced by Naledi Pandor, the former head of the National Council of Provinces.
"This is a very strong team," Mbeki told reporters after announcing the government in Pretoria. "I'm glad that when I spoke to them all last night and early this morning they responded well ... to the critical challenge which is the implementation of policy," he said.