Dame Sally has been interim CMO since May 2010 when her predecessor Sir Liam Donaldson stepped down.
Health Secretary Andrew Lansley said he was 'delighted' with the appointment.
'In her time at the Department, and in particular over the last nine months as interim CMO, she has demonstrated her expert knowledge of her field and provided invaluable advice to ministers on a broad range of issues from flu to nutrition to health protection,' he said.
'She will play a key role in developing the new public health service, shaping the way the Department improves and protects the public’s health. I look forward to working closely with her.'