Former Resources Minister Josh Frydenberg becomes the Minister for Energy and Environment.
Rockhampton-based Canavan has an economics degree and was a former director of the Productivity Commission.
He was appointed as the Minister for Northern Australia in February.
Canavan said the appointment to cabinet was an honour.
“As the only Senator based in Central Queensland and the first cabinet minister in Central Queensland since the 1970’s, this demonstrates the importance the government places in the Northern Australia agenda,” he said.
“I look forward to working closely with the Australian resources sectors as one of our most important contributors to our economic prosperity.
“It will be vitally important to maintain a strong industry that can continue to provide secure and well-playing jobs for thousands of Australians.”
The Queensland Resources Council welcomed the appointment.
“The resources sector requires steady safe hands to ride through the commodities downturn and in the face of a relentless green activist campaign,” QRC CEO Michael Roche said.
“Senator Canavan has already proven to be a champion for the sector in Queensland, in his role as Minister for Northern Australia, and I am confident he will be a strong voice for resources around the cabinet table.”