He succeeds Bob Woolmer, who died at the World Cup earlier this year after collapsing in his Jamaica hotel room.
"Lawson is our choice and we are confident he will help the Pakistan team into a new era of success," said board chairman Dr Nasim Ashraf.
The 49-year-old, who took 180 wickets in 46 Test appearances in the 1980s, has agreed a two-year contract.
Earlier, however, he told Australian TV and radio he would not have taken the job if there had been any doubts remaining about Woolmer's death.
The case was initially treated as murder but pathologists later contradicted the findings and confirmed he had died from natural causes.
"That put my mind at rest," said Lawson.
The Pakistan team has had eight different coaches in the past 11 years and struggled to achieve consistency in both Test and one-day cricket.
And Lawson's appointment ahead of rival candidate Dav Whatmore, the former Sri lanka and Pakistan coach, represents something of a gamble by the PCB as his only experience came with state side New South Wales.
Explaining their decision, Dr Ashraf said: "We wanted a bright, young, qualified coach, well aware of the modern day requirements."
Lawson believes Pakistan has a highly talented squad, who just need to achieve the right mental approach to improve results in all forms of the game.
"It's not a great exercise in skill development, it's an exercise in mental development," he told Sydney radio station 2KY.
"Australia never look on any game they run out on the paddock for as meaningless. That is a terrific attitude to have. Every day is 100% and that's certainly not what a lot of sides do.
"If you've got the talent and you're well prepared and you take every game as if it's a grand final, there's a chance you are going to do well.
"Pakistan's inconsistency has probably got a lot to do with that - not approaching every game, or the next game, as the most important one they're going to play.
"I think that is the greatest challenge," he said.
Lawson is expected to arrive in Pakistan next month to begin preparations for the Twenty20 World Cup in September and series against South Africa and India which follow.
His first task will be to appoint support staff to work alongside him.
Meanwhile, former Pakistan captain Inzamam-ul-Haq has not been included in a list of 20 players awarded central contracts by the board.
Despite retiring from one-day cricket following the World Cup, he was still hoping to continue his Test career.
"The selectors wanted to give central contracts to those players who are playing both forms of the game," explained Ashraf.
From : BBC