Llanelli Scarlets fly-half Jones won a two-horse race with Toulouse star Gareth Thomas for arguably the most coveted job in Welsh sport.
Jones, capped 56 times, will take the reins for Wales' autumn Test opener against Australia in Cardiff on Saturday week.
New Wales coach Gareth Jenkins revealed Ospreys prop Duncan Jones and Cardiff Blues flanker Martyn Williams had also been considered as possible skippers, but the final decision came down to a straight choice between 28-year-old Stephen Jones and Thomas.
Thomas led Wales in the opening games of last season's RBS 6 Nations Championship, but he was then sidelined after suffering a mini stroke before regaining full health for the start of Toulouse's French Championship campaign two months ago.
Explaining his thinking behind the captaincy decision, Jenkins said: "I flew out to see Gareth in Ulster (where he was playing for Toulouse) at the weekend and took him through our thoughts on the subject.
"His reaction was admirable, to say the least.
"It is fair to say that playing his rugby in France did not count in his favour in our decision, but Gareth's point of view was that he holds Stephen in extremely high regard and that he will be on his shoulder supporting him throughout his tenure as captain.
"Gareth will continue to be what he is, and his infectious enthusiasm and leadership qualities will continue to benefit Wales for a long time to come."
Jones, who captained Wales on one previous occasion against England in a 2003 World Cup warm-up game, said: "It is something I have had a brief taste of in the past, and it is a position I now feel ready to fill on a longer term basis.
"The captaincy won't change me. I will approach the job with a smile on my face as always, and hopefully ensure we have a happy camp with a strong work ethic."
Jenkins, meanwhile, has named a 32-man squad for the autumn Tests, which also features appointments with Pacific Islands, Canada and New Zealand.
Scarlets' 22-year-old centre Gavin Evans is the solitary uncapped player, while there are recalls for the likes of fit-again 2005 Grand Slam heroes Kevin Morgan, Tom Shanklin, Brent Cockbain and Ryan Jones.