The popular 44-year-old Spaniard, who forged one of the most unforgettable partnerships with Seve Ballesteros in the history of the biennial championship, was elected unanimously by the 15-man Tournament Players Committee of the European Tour.
The announcement was officially made by European Tour chief executive George O'Grady, and TPC Chairman Thomas Bjorn during the Abu Dhabi HSBC Championship, which starts at the Abu Dhabi Golf Club's National course from Thursday.
"If not the biggest, this is definitely one of the biggest challenges of my career, especially at this stage of my life," said Olazabal.
"I am very passionate about Ryder Cup, but being the captain and trying to win it, you only get one shot at it."
The Spaniard also said that he is feeling a lot better physically - he has been suffering from rheumatism and could play only three events last year - and that has been a big factor in him accepting the responsibility.
Olazabal played in seven Ryder Cups and was vice-captain for the past two tournaments.
The two-time Masters champion made his Ryder Cup debut at Muirfield Village in 1987 alongside compatriot Seve Ballesteros.
They won their first three games together as Europe triumphed on American soil for the first time and went on to be beaten only twice in 15 contests.
In all, Olazabal won 18 and halved five of his 31 matches while he has been on the winning side three times - in 1987, 1997 and 2006.
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