The 27-year-old has played in 30 Tests, 107 one-day internationals and 37 Twenty20 internationals since his Black Caps debut in 2006.
He has previously stood in for Vettori, who stepped down after the World Cup, in 11 ODIs and three T20 games.
"Ross has shown to be a very capable leader," explained New Zealand Cricket chief executive Justin Vaughan.
"The process to select the captain has been robust. We wanted to make sure the right people were involved and that we appointed the right man for the job.
"I would also like to acknowledge the wonderful contribution Daniel Vettori has made during his time as captain. He has been an astute leader and excellent role model."
Taylor, who was chosen ahead of wicketkeeper-batsman Brendon McCullum, added: "I've learnt a great deal about leadership having played under Dan and feel ready to take on what is one of the highest honours in New Zealand sport.
"I'm looking forward to the challenge and appreciate the level of responsibility that comes with captaining your country, and I believe we have the quality to be a force in world cricket."
He had a brief spell in English county cricket in 2010, playing Twenty20 cricket for Durham.
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