"We believe she has the experience, expertise and fresh perspective to lead the RBA as Australia -- and the world -- face ongoing economic challenges."
The Prime Minister also thanked Lowe for his "seven years of service to the nation, many of those years navigating unprecedented times".
In a statement, the outgoing Governor said the central bank was in good hands as it deals with the rising cost of living, the BBC reported.
"The Treasurer has made a first-rate appointment. I wish Michele all the best," he said.
The RBA is under pressure to tackle inflation, which is stretching household budgets.
The central bank has raised interest rates 12 times since last May -- to mixed reactions from economists.
The RBA's main interest rate is currently at an 11-year high of 4.1 per cent.