At the announcement in the presidential palace, Widodo asked his Cabinet and institutional heads to fight graft by creating a system to close off any chances of corruption.
"Don't be corrupt!" Widodo told the ministers. "Be serious at work, and for those who are not serious, I would take them out of this (Cabinet)," Widodo warned.
Violent student protests last month against a law they say has crippled the country's anti-corruption agency, which underlines the challenge in fighting graft, have threatened the credibility of Widodo, who was reelected after campaigning for clean governance.
Indonesia ranked 89th out of 175 countries in the 2018 Corruption Perceptions Index compiled by Transparency International.
Defense Minister Prabowo Subianto, 68, has lost two presidential elections to Widodo, is a former special forces general, and the founder and leader of the Gerindra political party.
Widodo, popularly known as Jokowi, had repeatedly said Indonesians should unite after the bitter election campaign. He and his defeated rival met in July for the first time since the April vote and Subianto had been negotiating for Cabinet positions, signaling a calming of tensions.
Subianto initially refused to accept the election results, and nine people died in post-election riots in Jakarta. The country's top court found no substance to his allegations of massive and systematic fraud and rejected his challenge to the election results in June.
Rights activists see Subianto's appointment as a conservative backlash against Widodo's efforts to address Indonesia's poor human rights record.
"It's a dark day for human rights and justice in Indonesia," said Andreas Harsono, Indonesia's researcher at Human Rights Watch.
Subianto has been linked to abuses during the authoritarian rule of longtime President Suharto, and he has allied himself politically with groups that want Islamic rather than secular law to prevail in Indonesia. He won big in conservative provinces, but mainstream Muslim organizations and minority voters backed Widodo, who secured 55.5% of the vote in the official results.
In other Cabinet appointments, Sri Mulyani Indrawati was reappointed finance minister. A popular reformist Indrawati, 57, was praised for overhauling a corrupt taxation department and guiding the economy through the 2008 global financial crisis and current global economic slowdown.
Edhy Prabowo, deputy chairman of Subianto's party, was named minister of maritime and fisheries, replacing Susi Pudjiastuti, who had become well-known for impounding and blowing up hundreds of foreign fishing boats caught poaching in Indonesian waters.
The 35-year-old Nadiem Makarim, CEO and co-founder of ride-hailing startup company Gojek, was named education and culture minister, and Erick Thohir, 49, a former owner of the Inter Milan soccer club was named minister of state-owned enterprises.
As the first Indonesian president from outside the Jakarta elite, Widodo had promised to promote professionals rather than party officials, who in Indonesia have a reputation for corruption and laziness.
However, economic analyst Bhima Yudhistira, from the Institute for Development of Economics and Finance, said market participants were dissatisfied that Widodo's new lineup had too many politicians in key economic roles.
Yudhistira said over 170 billion rupiah ($12 million) of foreign funds left the capital market shortly after the Cabinet announced Wednesday morning.
"Many regretted Jokowi's political coalition that was too fat," Yudhistira said. "It's prompting him to put people on his Cabinet not based on track records and professionalism, both economic and non-economic teams."
He said only Finance Minister Indrawati is credible in the eyes of the business community as other economic posts are held by politicians, including the coordinating minister for economy and ministers of social, industry and trade.
Indonesia, the world's most populous Muslim-majority nation and a democratic outpost in Southeast Asia, is forecast to be among the world's biggest economies by 2030.
Widodo has been widely praised for his efforts to improve Indonesia's inadequate infrastructure and reduce poverty, which afflicts close to a 10th of the nearly 270 million people.