Michael Gove will leave his job as Education Secretary in the biggest reshuffle of the top jobs in Government for four years.
The 46-year-old, a controversial figure among teachers, has been swapped to the role of Commons Chief Whip - a move described as "definitely a demotion" by Sky's Political Editor Adam Boulton.
In a shake-up described as a cull of the "pale, male and stale", a number of women were promoted into key posts, as has been expected, ahead of next year's General Election.
Nicky Morgan takes over from Michael Gove as Education Secretary
The first to secure a high-profile role was Nicky Morgan from Financial Secretary to the Treasury and Minister for Women to fill the vacancy left by Mr Gove. It is a rapid rise for an MP who has only held a seat in the House of Commons for four years.
Liz Truss, also only an MP since 2010, has moved from Education Minister to Environment Secretary to replace Owen Paterson, who was criticised for his response to the flooding crisis over the winter.
Esther McVey, another of the 2010 intake, had been tipped for a move but remains as Employment Minister, although she will now attend Cabinet.
Liz Truss is the Government's new Environment Secretary
Anna Soubry has been promoted to Defence Minister with Claire Perry going to Transport as Parliamentary Under Secretary.
Priti Patel has been made Exchequer Secretary at the Treasury and Penny Mordaunt has become a Communities and Local Government minister. Amber Rudd has become an Energy and Climate Change minister.
The wide-ranging reshuffle also sees the shock departure of William Hague, who has stepped down as Foreign Secretary.
Esther McVey stays at employment but is given Cabinet role
The 53-year-old will become Leader of the House Of Commons before standing down as an MP at the next General Election in 2015.
He is replaced by outgoing Defence Secretary Philip Hammond, whose job has been taken by Michael Fallon.
Mr Hague denied Mr Hammond's appointment marked a more Eurosceptic approach in Government and said: "We are very clear and united on Europe. Philip Hammond, David Cameron and I all have exactly the same policy on Europe.
"We want to improve Britain's relationship with the EU and then hold a referendum on staying in or leaving the European Union."
Philip Hammond replaces William Hague as Foreign Secretary
Mr Hague will now help to coordinate Government policy and become a "leading campaigner in key constituencies".
He will also be the Prime Minister's special representative on preventing sexual violence in conflict, following his work with UN special envoy and Hollywood actress Angelina Jolie.
Sky's Political Correspondent Sophy Ridge said: "When they said this would be a significant reshuffle, they actually meant it."
Dominic Grieve lost his role as Attorney General and has been replaced by Jeremy Wright, while Policing Minister Damian Green also lost his job, with Mike Penning getting a ministerial role in the Home Office .
Ken Clarke pictured arriving at No 10 on Monday
Mr Cameron has also announced Lord Hill will be the UK's candidate for European Commissioner, to replace Baroness Ashton in Brussels, leaving his post as Leader of the House of Lords. Baroness Tina Stowell will become the new Leader of the Lords.
Matt Hancock, a key ally of Chancellor George Osborne, takes on the post of Minister of State for Business, Enterprise and Energy from Mr Fallon and will also take on the job of Minister for Portsmouth, attending Cabinet.
Mark Harper, who was last seen resigning as immigration minister after he was discovered to be employing an illegal immigrant as a cleaner, has returned as Work and Pensions minister.
Liam Fox, who had been tipped for a return, confirmed he had been approached to be Foreign Office Minister but had turned down the offer.
Mr Hague with Angelina Jolie and US Secretary of State John Kerry
Meanwhile, Ken Clarke is retiring from Government at 74, and on Monday announced he was stepping down as minister without portfolio, bringing to an end a front bench career stretching back to 1972.
Speaking shortly after Mr Hague announced his departure, the Prime Minister paid tribute to him as a "first class Foreign Secretary" and "a close confidante, a wise counsellor and a great friend".
Welsh Secretary David Jones has been replaced by Stephen Crabb and Transport Minister Stephen Hammond and Minister for Civil Society Nick Hurd are also out.
International Development Minister Alan Duncan is standing down at his own request, while Universities Minister David Willetts has also stood down and has been replaced by Greg Clark.
In a shake-up of the Civil Service, Sir Bob Kerslake has stepped down as permanent secretary of the Department for Communities and Local Government, his role as head of the Civil Service will be handed to Sir Jeremy Heywood.
A new role of Civil Service chief executive is to be created and will report to Sir Jeremy.