The 40-year-old Mid Ulster Assembly member takes over as the republican party’s figurehead north of the Irish border weeks before a snap Assembly election.
Mr McGuinness’s resignation as deputy first minister in protest at the Democratic Unionists’ handling of a botched green energy scheme triggered the collapse of the powersharing administration.
The Sinn Fein veteran later announced he would not seek re-election due to his ongoing battle against a serious illness.
Announcing the appointment, Sinn Fein president Gerry Adams said Ms O’Neill represented a “new generation” for the party.
“As a united all-Ireland team, we will give her the space and support to find her own voice and continue the good work Martin pioneered,” he said.
Mr McGuinness invoked a familiar republican phrase, which Mr Adams once used in reference to the IRA, to insist he would still be involved in political activism.
“I haven’t gone away, you know,” he said.
Ms O’Neill said being a republican was her “way of life”.
She told the party faithful at Parliament Buildings, Stormont: “I won’t let you down.”
She added: “This is the biggest honour and privilege of my life.”
Ms O’Neill said she would continue Mr McGuinness’s “good work”.
“I have never been afraid of a challenge and I have never been afraid to act,” she said.