The 23-year-old replaces Chris Read who stepped down from the role in the shorter format last week to concentrate on skippering in the LV= County Championship.
Taylor will also serve as Read's deputy in the four-day game and Notts director of cricket Mike Newell is excited about the new captaincy tandem at Trent Bridge.
"It's important to have a succession plan in place and I was keen to get James involved in the captaincy in some form," he said.
"Chris had stepped aside to allow David Hussey and Adam Voges to captain our twenty20 side in recent seasons and benefited from having that break and this is a natural extension of that with James very suited to the role.
"Both players are pleased with the arrangement and I'm hopeful that it will help us to continue to improve."
Taylor captained Nottinghamshire to victory over Surrey in the championship during Read's injury absence last season and has also captained the England Lions on tour.
"I'm looking forward to captaining Notts Outlaws because I've had positive experiences leading the Lions against good opposition on tough tours," he said.
"There are challenges that come with it but I'll enjoy the extra responsibility. I'm going to relish every minute of it but most importantly I need to lead from the front with the bat.
"I'm a relatively young and inexperienced captain so I haven't defined my style yet. I'll definitely be trying to get the best out of everyone in any way that I can by giving them confidence to play."
The former Leicestershire batsman played two Tests for England last summer and has long been tipped as a future regular for Andy Flower's team.
His international career has not yet hit the heights many expected it to but Newell is aware that Taylor is still on England's radar as part of the Lions set-up and admits any major breakthrough on the biggest stage could prompt a rethink on the Outlaws captaincy.
"It's almost impossible to combine an international career with club captaincy and we will reevaluate things if James becomes a Test regular," he said.
"He is entering a crucial period for his international aspirations over the next three seasons and I still believe that he could play a lot of cricket for England if opportunities arise for him."
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