Gov. Neil Abercrombie announced the appointment after receiving a list of three candidates from the state Democratic Party earlier in the day. The other candidates were U.S. Rep. Colleen Hanabusa and Esther Kiaaina, a deputy director in the state Department of Land and Natural Resources.
Inouye died December 17 of respiratory complications at the age of 88. He had sent Abercrombie a letter that day, saying he would like Hanabusa, 61, to succeed him.
"Sen. Inouye conveyed his final wish to Gov. Abercrombie. While we are very disappointed that it was not honored, it was the governor's decision to make," Jennifer Sabas, Inouye's chief of staff, said in a statement. "We wish Brian Schatz the best of luck."
Schatz will serve until an election is held in 2014. Had Hanabusa been appointed, a special election would have been needed to fill her seat.
Senate Majority Leader Harry Reid had urged Abercrombie to name Inouye's successor before the end of the year. Schatz could be sworn in as early as this week, which would make him Hawaii's senior senator heading into the new Congress, which begins January 3.
Sen. Daniel Akaka is retiring at the end of this Congress, after 22 years in the Senate. Democratic Rep. Mazie Hirono was elected in November to succeed him.
Schatz, 40, is a former state representative and a former chairman of the state Democratic Party. He also was a leader of President Barack Obama's campaign in Hawaii in 2008.
In making his case before the party's central committee Wednesday, he said he understood the importance of seniority in the Senate and said that if he was appointed, he would strive to make serving in the Senate his life's work.
Becky Bohrer can be reached on Twitter at http://twitter.com/bbohrerap.
Copyright 2012 The Associated Press.