The 43-year-old Arthur, who replaces Tim Nielson, was South Africa's coach from 2005-2010 and has been head coach with the Western Australian Cricket Association Retravision Warriors since 2010.
He came to coaching after a 15-year first-class playing career in South Africa that netted him 6657 first-class runs including 13 centuries, as well as 3774 one-day runs in South Africa's home competition.
Arthur has been contracted to take him through past the end of the next ICC World Cup, due to be staged in Australia and New Zealand in 2015.
'I am honoured and privileged to have another chance to coach an international team, particularly a team of the ilk of Australia,' said Arthur.
'I think I bring a fresh, unblinkered eye to the role after plotting against Australia when coaching South Africa and having now worked within the Australian system with the Warriors.
'Australia has an abundance of cricket talent and I am confident the talent is there to ensure Australia is successful,' he added.
CA Chief Executive Officer James Sutherland said Arthur would be in the role in time for the first Test against New Zealand due to start in Brisbane on 1 December.
'The position is a new, elevated role responsible for day-to-day coaching of the Australian team but also for overall Australian cricket coaching strategy and function and was created as one of the key recommendations of the recent Australian Team Performance Review (ATPR),' Sutherland said.
"It is the final of the major new positions that review recommended, following the recent appointments of Pat Howard to the new role of General Manager Team Performance and of John Inverarity to the new full-time role of national selector.'
CA General Manager Team Performance Pat Howard, to whom the head coach reports, said Arthur was the outstanding candidate, found after a global search and assessment of a long list of eminent Australian and overseas candidates.
'Mickey impressed on a number of levels, including his proven ability to turn teams around and his deep knowledge of the Australian cricket scene and its current and prospective future international players across three formats,' Howard said.
Arthur, who has an Australian great grandfather, said he and his family were planning to become permanent Australian residents and to make Australia their home.
The ATPR had recommended the creation of the new head coach role to lead the team's planning, preparation and coaching staff and to take joint responsibility with the captain for day-to-day team performance.
The coach will also be responsible for helping develop team vision, strategy and a high-performance culture, as well as acting as a selector.
The head coach will work with State coaches and the head coach of the Centre of Excellence to develop strategies to improve coaching and player development across Australian cricket, including development of individual player development plans.