Santander's board of directors has unanimously appointed Ana Botin the new chairwoman of the bank following the death of her father Emilio, the lender said in a statement.
Ana Botin was deemed "the most appropriate person, given her personal and professional qualities, experience, track record in the group and her unanimous recognition both in Spain and internationally," it said.
Analysts and investors had long expected Ms Botin, who previously headed Santander's British business, to be his Mr Botin's ultimate successor.
After an eight-year stint at JPMorgan's investment bank, she has spent most of the last 25 years at Santander.
But her high profile in the bank has attracted criticism.
Earlier this year two shareholder advisory firms, ISS and Glass Lewis & Co, recommended shareholders vote against her re-election as a director - one because it thought Botins were over-represented on the board, the other because it considered there were not enough independent members.
In the event, she got the backing of 81.3% of the votes, almost unchanged from three years earlier.
Her appointment could spark fresh controversy, however, with banking dynasties coming under criticism after a scandal at Portugal's Banco Espirito Santo, where the founding family's holdings are being investigated over financial irregularities.
Her father Emilio Botin, who was 79-year-old, died yesterday following a heart attack.
He was one of Spain's most powerful men, having transformed Santander from a small domestic lender into the euro zone's biggest bank.
Emilio Botin, "El Presidente" to co-workers and the third generation of Botins to run Santander, was at the forefront of a drive to create global banks, offering a one-stop shop to multinational companies and a range of services to consumers.
He used his keen eye for deals to spread Santander's brand with its stylised 'S' logo around the world, amassing €1.4 trillion of funds and nearly 200,000 employees.
"He was a man who has been able to make Banco Santander the most important bank of our country," Spanish Prime Minister Mariano Rajoy told journalists in the Spanish Parliament.
"I had a meeting with him last week and he was well and in good form. It has been a surprise and a blow," he added.
Botin shook up Spanish banking with a campaign to attract depositors in 1989, forcing rivals to compete on price, and bought troubled Banesto in 1994 to create Spain's biggest bank.
He took advantage of cultural and language ties to expand rapidly into Latin America, and in 2004 snapped up Britain's Abbey National for over £9 billion.
More canny dealmaking followed. In 2007, Santander made €2.4 billion in three weeks through deals to buy and then sell Italian bank Antonveneta.
And while partners RBS and Fortis were driven to seek state bailouts after a carve up of ABN Amro on the eve of the financial crisis, Santander emerged comparatively unscathed with the Dutch group's healthier Brazilian arm.
The expansion helped to shield Santander from the euro zone debt crisis and Spain's long-running recession, with the bank now making only about 14% of its profit at home.
But it has not been all success. Santander has trailed the total returns to shareholders delivered in the past ten years by rivals JPMorgan and HSBC - two firms Botin liked to measures himself against, according to colleagues.
There has been controversy too. Botin's family, which owns barely 2% of Santander, paid €200m in penalties in 2011 to avoid charges of tax evasion related to a secret Swiss bank account.
