He will replace Lord Ashcroft, the peer who resigned from the post earlier this week after publishing a withering critique of the Tory election campaign.
Fallon, a well-respected MP who served as a whip for Margaret Thatcher, has been tipped for a big job since missing out in the race to become chairman of the Treasury select committee.
Tory party sources said Fallon would be expected to defend the Conservative party in the media, now that government ministers are forced to tow a coalition line that has been pre-agreed with the Liberal Democrats.
Fallon will work alongside Lady Warsi and Andrew Feldman, the joint chairmen of the Conservative party, who have both struggled to raise their profile in the media.
“Michael’s experience across a range of government policy areas and political life will make him a real asset,” said David Cameron.
Fallon stepped down as chairman of the Tullett Prebon remuneration committee in December last year.