Hillier, 49, who was named chief of land staff in May 2003, will take over his new job on February 4, replacing General Raymond Henault who has been chosen as NATO's chief military adviser.
"Hillier brings strong leadership and unparalleled experience to his new position," said Martin.
Hillier joined Canada's armed forces 33 years ago. His experience includes a long stint in the former Yugoslavia working for the United Nations and NATO.
Defence Minister Bill Graham said that Hillier's nomination comes as the government is due to announce this year Canada's new defence and foreign policy "in the post-September 11 security environment."