Dr Nelson will replace Major-General Steve Gower who is retiring at the end of the month after 16 years in the job.

Dr Nelson will relocate back to Canberra from Brussels where he is currently the Australian Ambassador to the European Union, the North Atlantic Treaty Organisation, Belgium and Luxembourg.

Minister for Veterans' Affairs Warren Snowdon announced the appointment this afternoon.

"For the past few years, Dr Nelson has been influential in driving the Australian Government's program of commemorations across the Western Front, ensuring Australia's efforts from the First World War are recognised on an international scale," Mr Snowdon said.

Mr Snowdon noted Dr Nelson brought "a breadth of experience" to the job and was appointed following "a merit selection process which attracted a number of high quality applicants from Australia and overseas".

"I welcome Dr Nelson's appointment to the role, I am sure that he will follow in the footsteps of his predecessor ensuring the Memorial continues to be regarded as Australia's foremost shrine to our military memory," he said.

"I am confident Dr Nelson will continue to enhance the Memorial and lead it through a significant period in our wartime history, with the Centenary of Anzac 2014-18."

Mr Snowdon said the Australian War Memorial had grown as one of the nation's premier cultural institution under the direction of Major-General Gower.

"During his 16 year tenure as Director, Major-General Gower has done a tremendous job, serving the Memorial and through it the people of Australia, in preserving the memory of those who have fought and died for our country.

Major-General Gower has spent the last nine months on an extended leave of absence for family reasons.

"Major-General Gower has steered the Memorial toward the future, embracing new and innovative technology as a new way to tell the story of Australians at war. The impressive redevelopment of the Hall of Valor, improvements to facilities and the skillful adoption of interactive technology will be part of his legacy," Mr Snowdon said.

Dr Nelson will not take up the position until December 17, with Nola Anderson to continue in the role of acting Director until then.

The government will now need to consider replacing Dr Nelson as Australian Ambassador to the EU, NATO, Belgium and Luxembourg. A government spokesman said the duties may be allocated to more than one person in future.