The batsman, who was not in the squad for the World Cup campaign, played the last of his 14 one-day internationals in 2013.
Ali,??who averages 41 in ODIs, has captained his country at U19 level.
Misbah, who has retired from the 50-over format, will continue to lead the side in Test matches where Ali will be his deputy.
Wicketkeeper Sarfraz Ahmed has been named as vice-captain for ODIs and will also be Shahid Afridi’s deputy in Twenty20s.
And Ali admitted he has a hard act to follow Misbah. “It’s a huge responsibility and I hope that all players will support me,” he said.
“I salute him (Misbah-ul-Haq), the way he served and the way he played. His services are unforgettable.
“It is a very difficult task to replace him and it (Misbah’s departure) will create a huge gap especially in one-day cricket.”
Misbah led the side in 87 of his 162 ODIs, winning 45 of them.
Meanwhile, Pakistan Cricket Board (PCB)??chairman Shaharyar Khan said Ali had proved himself in domestic cricket.
“Azhar Ali has been appointed captain because of his leadership skills, team spirit and character,” he said.
“I know Azhar Ali was not in the team in the last two years but his performance in the pentangular series proved that he deserves to be the captain.”
Khan added captain and coaches will have no voting rights in selection and can only give their suggestions to the selection committee.
The PCB also announced former batsman Haroon Rasheed will be the new chief selector.
Kabir Khan, who has coached Afghanistan, has been included in the four-member selection panel.
Pakistan, who were dumped out of the World Cup in the quarter-finals by Australia, have a series against England in October in the United Arab Emirates.