It's the latest appointment for the former Ontario premier under Trudeau, after having been Canada's special envoy for humanitarian and immigration issues and, before that, special envoy to Myanmar.
The 71-year-old was interim leader of the federal Liberals prior to Trudeau's taking over the party in 2013.
Rae succeeds Marc-Andre Blanchard as ambassador following Canada's unsuccessful effort to win a seat at the UN Security Council.
Canada was defeated on the first ballot last month by Norway and Ireland.