Mr Hockey's appointment comes after he left politics following his removal as treasurer by Malcolm Turnbull.
He had been seen as a close ally of Tony Abbott who was ousted as PM by Mr Turnbull in a party vote in September.
Mr Turnbull said Mr Hockey was "a great Australian, he is one of the most engaging, persuasive people I've known in public life".
"He's held very high office, he's got great contacts in the United States, he's a passionate patriot," he told Australian media.
Announcing the appointment, Foreign Minister Julie Bishop said Australia's relationship with the United States was the "bedrock of foreign and defence policy".
Some in the Labor opposition questioned the move, citing Mr Turnbull's role in ousting Mr Abbott and Mr Hockey's departure from politics.
"This is a very important posting for Australia and should be done by someone with a deep interest for foreign affairs," said deputy opposition leader Tanya Plibersek.
"There is no doubt this is a captain's pick by Malcolm Turnbull," she told ABC television.
Kim Beazley, who has has been Australia's ambassador to the United States since 2010, will be replaced by Mr Hockey in January.

The trunk road drops from 150m (492ft) to 20m (65ft) as it enters a valley at the braes in Caithness.
There have been accusations from business leaders and politicians that the problem with this section of the A9 was being "ignored".
Documents key to progressing the improvements have been published.
The documents, called made orders, are part of the process towards eventually appointing a contractor and then starting work in 2018, Transport Minister Humza Yousaf has said.
He added: "The Scottish government has been working to progress the much-needed improvements to the A9 at Berriedale Braes.
"The hairpin bend and steep hill at Berriedale Braes has presented drivers, in particular HGVs and other long vehicles, with a very challenging road to negotiate.
"Having got the go-ahead last December following the public local inquiry, we are now able to publish the made orders for the scheme as a clear signal of our commitment to deliver this scheme."
Australia's former treasurer Joe Hockey has been named as the new ambassador to the United States.
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Construction of planned improvements to a challenging hairpin bend on the A9 at Berriedale Braes could begin next year, the Scottish government has said.