Davey takes over as energy secretary from Chris Huhne
Ed Davey has been named the new energy and climate change secretary following Chris Huhne's resignation.
Fellow Lib Dem Norman Lamb takes over from Mr Davey as business minister, responsible for the Post Office, Royal Mail and employment relations.
Mr Davey said he would focus on the challenges of climate change, energy security and high energy prices.
Deputy Prime Minister Nick Clegg said Mr Davey had shown a "lifelong commitment to the environment".
David Cameron said he was sure he would do "a very good job".
Mr Huhne resigned after learning he will face a charge of perverting the court of justice over claims he asked his then-wife Vicky Pryce to accept speeding points on his behalf in 2003.
He said he was innocent and he intends to clear his name but was standing down to "avoid distraction".
Mr Davey said Mr Huhne had done "fabulous work as secretary of state".
"I've now got to take up the challenges, the challenges of climate change, the challenges of energy security and I'm particularly conscious of the impact on consumers, households across the country, of high energy bills," he said.
"I'm determined to work to follow on Chris's priorities, the Liberal Democrats' priorities, the coalition government's priorities and make them my priorities.
"I want us to have a green economy with lots of green jobs to grow our economy."
Mr Davey, who is MP for Kingston and Surbiton, was the Lib Dems' foreign affairs spokesman prior to the 2010 election but was given his business brief after the coalition was formed.
Among his tasks in that role has been taking plans for the part-privatisation of Royal Mail through Parliament.
The BBC News Channel's chief political correspondent Norman Smith said Royal Mail was a sensitive issue, similar to the NHS, and Mr Davey was seen as having handled it well.
But he said the energy and climate change brief was also a difficult one, in particular given the widespread public anger about rising utility prices.
Mr Clegg said Mr Davey had shown as a minister "a formidable grasp of the details of government policy" and was "the right man" to take up from where Mr Huhne had left off.
Meanwhile, Mr Lamb moves from his role as Mr Clegg's parliamentary private secretary to the Department for Business, Innovation and Skills, run by his fellow Lib Dem Vince Cable.
The North Norfolk MP said he was "honoured" to take on the post, adding: "I know how important it is to be securing jobs at the moment, and I will do everything I can to help in that endeavour."
Mr Lamb, who has been among the deputy PM's closest advisers, will be replaced by East Dunbartonshire MP Jo Swinson.
In one further move, Lib Dem MP for Cardiff Central Jenny Willott becomes an assistant government whip.
She resigned as a parliamentary private secretary to Mr Huhne in 2010 in order to vote against the government on the planned rise in tuition fees.