Denholm is now the Chair of Tesla's Audit Committee a role she will step away from until her initial 6 month notice period is complete.
Denholm, the CFO of telecommunications firm Telstra, is unique among Tesla's board members as having actually worked in the automotive business - at Toyota Motor Corporation Australia - earlier in her career. In media interviews he said he often slept on a sofa in the Tesla office and more recently in an online video he briefly smoked marijuana.
Ms Denholm already is on Tesla's board.
Denholm is one of the two female directors on Tesla's nine-member board since 2014. The Australian telecommunications executive will assume the role immediately, the company announced this morning.
Mr Musk agreed to step down as chair last month to resolve claims of fraud brought by United States financial regulators.
Corporate governance experts say they would have preferred an outsider with manufacturing expertise be appointed to lead the board, now dominated by people with personal and financial ties to Musk, including his brother.More news: Fantastic freshmen help No. 4 Duke blow out No. 2 Kentucky
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On Twitter Thursday morning, Musk wrote that he has great respect for Denholm.
Tesla earned a US$311.5 million net profit during the third-quarter.
Musk sparked an SECC investigation into Telsa by claiming on Twitter he had secured funding to take the company private from the Saudi sovereign investment fund.
While Tesla is finally starting to make good on Musk's promises on production of the Model 3 sedan, seen as crucial to the company's future, it has lost senior executives for sales, human resources, manufacturing and finance in recent months.
The announcement comes after Telsa had until November 13 to name an independent board chairman under its agreement with the Securities and Exchange Commission.
The appointment of Denholm caps months of turbulence for Tesla amid investor demands for stronger oversight. Musk later tweeted that this was "incorrect".
"Just want to that the Shortseller Enrichment Commission is doing incredible work".