Torre, 70, retired as manager of the Los Angeles Dodgers after last season and will now oversee Major League operations, on-field discipline and umpiring.
"He is a perfect fit to lead our baseball operations staff, implement our on-field initiatives and serve as one of the game's most significant voices on major issues," Selig told reporters at a Scottsdale, Arizona, news conference.
Torre replaces John McHale, who held the position on an interim basis since June and will focus on his regular duties, leading the administrative functions of MLB's central offices.
Torre spent 29 years as a Major League manager, working with the New York Mets (1977-1981), Atlanta Braves (1982-84), St. Louis Cardinals (1990-95), New York Yankees (1996-2007) and Dodgers (2008-10) before retiring.
As a player, Torre spent 18 seasons in the Major Leagues and was a nine-times All-Star who earned 1971 National League Most Valuable Player honors while playing with the St. Louis Cardinals. He also played played for the Milwaukee-Atlanta Braves and New York Mets.
"Baseball has been a big part of my life, and I thank the commissioner for this opportunity," Torre said in a statement.
(Reporting by Gene Cherry in Salvo, North Carolina; Editing by Frank Pingue)