The Munster man, who starred in the first Test win over the Australia with the Lions this summer before breaking a bone in his arm, has not played for his country since the 2012 Six Nations.
But new Ireland head coach Joe Schmidt has handed him the honour with fellow Lion Jamie Heaslip his vice captain.
"The captaincy, it was a tough decision. We're got a very good group who are steering the ship," said Schmidt.
"To have two guys at the helm allows us to cover our bases. Obviously with Paul, he's had an intermittent two years where he has had a number of injuries whereas Jamie is incredibly durable, and it just allows us to cover both bases."
A calf injury means O'Connell will start on the bench this weekend for Ireland's clash with Samoa alongside fellow victorious Lions Sean O'Brien and Cian Healy who are also recovering from knocks.
Fly-half Jonny Sexton is not even in the squad of 23 however as he continues to struggle with a tight hip.
"There is a chance that we could worsen the condition of Jonny's hip tightness and a break is a positive thing for him when you consider that the accumulation of games he has played (for Racing Metro) will start to take its toll. That contributes to the wear and tear," said Schmidt.
"If we look after him now, we're confident he'll come back stronger for us, even looking ahead to the Six Nations."