He said his government "will work for the sake of all the people", adding that the priorities would be reforms in education, health and cutting red tape.
The right-wing nationalist will lead an unprecedented coalition of parties backed by MPs in Sunday's 60-59 vote.
He succeeds Benjamin Netanyahu who was forced out of office after 12 years.
Mr Bennett, leader of Yamina party, will be prime minister until September 2023 as part of a power-sharing deal.
He will then hand power over to Yair Lapid, head of the centrist Yesh Atid, for a further two years.
Mr Netanyahu - Israel's longest-serving prime minister - will remain head of the right-wing Likud party and become leader of the opposition.
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