Schulz was Parliament President from 2012 until he stepped down earlier this year to run in the German elections.
An avowed Europhile, he has promised to fight populism if his party wins the elections due in September.
Confirmation of his nomination comes in the wake of a poor showing for Geert Wilder's anti-Islam party in last week's Dutch general election and with new polls showing that support for the right-wing Alternative for Germany/AfD has nearly halved to 8 per cent.
In January 2017, Sigmar Gabriel announced he would not be the SPD candidate for the German Chancellorship in favour of Schulz. Gabriel also said he would not stand for re-election as party leader and recommended Schulz as his replacement.
At an SPD party meeting in Berlin at the weekend, Schulz denounced Eurosceptics and the racist rhetoric of US President Donald Trump.
The convention unanimously confirmed the former MEP as the candidate who will lead the Social Democrats to the election in the autumn.
The SPD has been the junior partner in Germany's grand coalition since 2013, but the party hopes that Schulz, who had been an MEP since 1994, will boost its chances of governing without Merkel's CDU.
Opinion polls suggest the Social Democrats trail the CDU, although Schulz's personal rating compares favourably with that of Merkel, who plans to run for an unprecedented fourth term.
On Sunday, a poll showed a left-leaning alliance led by the SPD would potentially have enough support to oust Merkel from power in the parliamentary elections, expected to be held on 24 September.
Merkel remains the most popular choice for chancellor, however, with 46 per cent of voters saying they would choose her in a direct vote, against 38 per cent for Schulz.
In accepting the party's nomination, Schulz also repeated his vow to undo some of the radical labour market changes introduced by Gerhard Schroder, the last SPD chancellor, which have been seen as the main reason for the party's chronic poor standing in the polls
The only office ever held by Schulz in Germany was that of councillor and then mayor of the small town of Wurselen.