Downing Street announced the Right Reverend Dame Sarah Mullally would succeed the Rt Rev Richard Chartes after her nomination was approved by the Queen, placing her in the Church's third most senior position behind the Archbishops of Canterbury and York.
The 55-year-old - who received her damehood in 2005 in recognition of her outstanding contribution to nursing and midwifery - used her first day in the role to call for a more diverse line-up of leaders across Britain's churches.
"If our churches are going to be more relevant to our communities, that means increasing churches that are led by priests that are women, who come from black, Asian and minority ethnic groups," she said.
"London is a very diverse city and I would hope that everybody can find a spiritual home and a place where they can encounter the love of Jesus Christ that I have come to know."
Mrs Mullally described her appointment - which comes 18 years after she became the Department of Health's youngest chief nursing officer - as "a wonderful privilege".
Her role as the government's top nurse saw her advise senior civil servants and the then Prime Minister Tony Blair on NHS policy, during which time she introduced Europe's first patient survey in a bid to understand the experiences of those who used the health service - which she said was her proudest achievement.
But the mother-of-two left in 2004 having been ordained three years prior, climbing the ranks of the Church to become Bishop of Crediton in the Diocese of Exeter and now that same role in her home city - the 133rd person to take on the prestigious position.
Traditionalists are likely to be unhappy due to their opposition to women being ordained, but she has been congratulated on her new title by a number of senior Church figures.
Archbishop of Canterbury Justin Welby, tweeted: "Wonderful news - Bishop Sarah brings to this remarkable ministry in this great city an extraordinary experience and profound gifts, which are guided by her faith in Jesus Christ, who is the foundation of all that she is."
Mayor of London Sadiq Khan added: "Congratulations to Sarah Mullally, the new Bishop of London - an incredible public servant, a great Londoner, and the first woman to take on this role."
Mrs Mullally will also take up a role in the House of Lords as part of the Lords Spiritual.
Abby Day, Professor of Race, Faith & Culture at Goldsmiths, University of London, said: "It would be great if her reforming spirit turned to the problem of having a Christian-centric Lords in such a modern, multicultural country."
