Dick, 56, becomes the most senior officer in the country, heading a force of some 43,000 officers and staff and controlling a budget of more than 3 billion pounds.
"I am thrilled and humbled. This is a great responsibility and an amazing opportunity," said Dick, who has been working for Britain's Foreign Office after leaving the London force in 2015.
London Mayor, Sadiq Khan, welcomed the appointment "on behalf of all Londoners".
The Oxford University graduate had been the favourite to succeed Bernard Hogan-Howe who steps down as Metropolitan Police Commissioner this month after five years in charge.
In speeches to mark his departure, Hogan-Howe said budget pressures meant there would be fewer officers in future and that the force was struggling to recruit the extra firearms officers likely to be needed to deal with any terrorist attack.
Dick will also have to decide how to police the upcoming state visit of U.S. President Donald Trump which has already generated anger and is likely to be dogged by protests.
Highly respected and popular with ordinary officers, Dick joined the London force, known as Scotland Yard, in 1983 as a constable and made her way up the ranks including a spell back in charge of her hometown of Oxford.
In July 2005, she headed the operation that led to Jean Charles de Menezes, 27, being shot dead by police at Stockwell underground station in south London after the Brazilian electrician was mistaken for a would-be suicide bomber.
Only the day before, four Islamist militants had tried unsuccessfully to bomb London's transport network and police wrongly thought he was Hussein Osman, one of the attackers on the run, who lived in the same apartment block as de Menezes.
British security services were already on a high state of alert as two weeks earlier four young British Muslims had killed 52 people and themselves in suicide bombings on three underground trains and a bus.
Not culpable
The force as an organisation was later found guilty of breaching health and safety laws, but the jury said Dick herself should not be held culpable, a decision upheld by the European Court of Human Rights last year.
The family of de Menezes told the BBC in Brazil Dick's new appointment was offensive and that they had asked London Mayor Sadiq Khan to veto it.
"Cressida Dick was in charge of the operation in which an innocent man was killed and her actions were at least incompetent," the family said.
But two years after the killing, as an indication of how well she was thought of by colleagues, she was promoted to Deputy Assistant Commissioner, putting her in charge of the protection of the royal family and other senior individuals.
She later became Britain's most senior counter-terrorism officer and was the national director for security during the 2012 London Olympic Games.
Her appointment means the most senior jobs connected to policing in Britain are now held by women, while the minister with responsibility for police and security is Home Secretary Amber Rudd.
