UniCredit's board unanimously backed Mustier's appointment at an extraordinary meeting, three sources said, ending a period of intense uncertainty that began last month with the announcement that Italian CEO Federico Ghizzoni would quit.
Mustier, 55, has previously headed the investment banking divisions of Societe Generale and UniCredit and is currently a partner at fund manager Tikehau Capital.
He had first joined UniCredit to head its investment banking division in 2011, nearly two years after resigning from SocGen.
He had been in overall charge of SocGen's investment banking unit in January 2008 when the bank disclosed 4.9 billion euros of losses blamed on unauthorized trades by Jerome Kerviel.
Mustier quit SocGen in 2009 after the French market watchdog accused him of insider trading. He was fined 100,000 euros for selling shares just as world markets began to fall as the financial crisis intensified in the summer of 2007. Mustier has always denied any wrongdoing.
UniCredit shares have slumped nearly 40 percent since Ghizzoni said he would quit.
Italian banks are carrying 360 billion euros ($400 billion)in bad debts, or a third of the euro zone's total, raising concerns that further heavy share price falls could erode confidence among both their investors and depositors.
Top government and central bank officials along with shareholders and bondholders had called for UniCredit to find a new CEO quickly, concerned that UniCredit could become the target of speculative attack in the stock market.