The first government of Manuel Valls, who was appointed less than five months ago, fell on Monday after a row with Economy Minister Arnaud Montebourg.
Arnaud Montebourg resigned along with two other ministers from the left.
He will be replaced by Emmanuel Macron, a former Rothschild banker and ex-presidential economic adviser.
President Francois Hollande is seeking a coherent line on economic policy after recent criticism from the left wing of his Socialist Party.
Many see it as his last chance to make a successful presidency, after his recent poll ratings sunk to 17%.
For the first time, a woman – Najat Vallaud-Belkacem – will be put in charge of education, replacing Benoit Hamon who also lost his job.
Najat Vallaud-Belkacem was minister for women’s rights in the last cabinet.
Meanwhile, Fleur Pellerin has been made minister for culture, replacing Aurelie Filippetti who is also out of the government.
Key ministers in the previous cabinet, like Foreign Minister Laurent Fabius, Defense Minister Jean-Yves Le Drian and Finance Minister Michel Sapin, retain their posts.
Francois Hollande’s former partner and the mother of his four children, Segolene Royal, will retain her post as environment and energy minister.
The president said earlier that the new cabinet should “cohere to the directions of the prime minister”, who is on the party’s right wing.
PM Manuel Valls said he would hold a parliamentary vote of confidence in September or October, speaking in a TV interview after the new ministers were named.
“And you will see, the majority will be there. There can be no other way. If the majority isn’t there on that occasion, it would be finished. We couldn’t finish our work,” he told France 2 TV.
Manuel Valls also defended the choice of a former banker for new economy minister, saying: “So what? Can one not in this country be an entrepreneur? One can’t be a banker?”
Arnaud Montebourg quit after publicly urging the government to end austerity policies and focus on growth.
France is struggling with high unemployment and low growth, and Francois Hollande’s popularity is the lowest for a president in more than 50 years.
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