The South East Asian nation has been left without a functioning government since Mari Alkatiri resigned as prime minister last month amid allegations he formed a hit squad to kill his political opponents.
"Today I officially announce the new government of East Timor," President Xanana Gusmao said on Saturday after holding talks with Alkatiri's ruling Fretilin party.
The party provided Gusmao with a list of four candidates - among them Ramos-Horta, the outgoing foreign minister who won the 1996 Nobel Peace Prize for championing the cause of East Timor's independence.
The recent violence, in which at least 30 people were killed and 150,000 made homeless, was the worst to hit the former Portugese colony since independence from 24 years of Indonesian rule in 1999.
To bring political stability ahead of next year's elections, Ramos-Horta will have to quickly address splits in the security forces, fully investigate killings, and forge political support within Fretilin, which has seen internal divisions harden.