The former world number two, who won in SW19 in 1994, is one of Spain's greatest Fed Cup players, winning the trophy five times, and now gets the chance to lead the team.
She played in 53 ties between 1988 and 2004, winning 68 rubbers and losing just 23.
However, her appointment comes in trying circumstances for the Spanish Tennis Federation.
Former skipper Arantxa Sanchez Vicario resigned last month after siding with players in a dispute with the federation. The players claim president Jose Luis Escañuela has reneged on promises.
Hinting at a resolution to the dispute, Martinez said: "Fed Cup was a competition that has given me much joy when playing and I hope that with the joint efforts of all the players, we can bring the Spanish Fed Cup team back to the top."
Announcing the decision, Escañuela said: "Conchita is a Spanish tennis legend, it is desirable that the people who have given so much to our sport have the opportunity to continue to help the team."
Martinez's first tie in charge will be in World Group II - the second tier of the team competition - at home to Ukraine on February 9-10.
Martinez is expected to shed light on who will play in the tie when she faces the media on Monday.