Subbarao, 59, who was previously Finance Secretary in New Delhi, assumed office at the central bank's headquarters in Mumbai. He has been appointed for three years.
He takes over as annual inflation is running above 12 per cent and economic growth is slowing from a rapid clip of 9 per cent and above in the past three fiscal years.
The central bank raised interest rates three times in June and July to calm price pressures and inflationary expectations, taking its key lending rate to a seven-year high of 9.0 per cent.
Inflation has eased from a peak of 12.63 per cent in early August to 12.34 per cent later in the month. Analysts say the slowing pace gives Subbarao time to assess the price and growth outlook before the central bank's next rate review in late October.