Ms Deacon will succeed Ian McKay when he stands down as chairman at the IoD Scotland conference on Friday.
She was elected as Labour MSP for Edinburgh East and Musselburgh in 1999 and served as Scotland's first health minister following devolution.
Ms Deacon stood down from elected office in 2007.
She has since worked across the private, public and third sectors and is currently a professorial fellow at the University of Edinburgh.
Ms Deacon is also a non-executive director of Scottish Power Ltd, Lothian Buses Ltd and the Institute of Occupational Medicine.
Mr McKay said: "The future of the IoD is in excellent hands with Susan at the helm.
"Her varied experience and approach to leadership will be of real benefit to the IoD at a time when boards are increasingly embracing change."
Commenting on her appointment, Ms Deacon signalled her intention to build on IoD Scotland's work on promoting strong leadership and governance.
She said: "Successful organisations need effective leaders - it's that simple.
"If Scotland is to continue to grow and flourish on a world stage we need to support the leaders of today and to grow the leaders of tomorrow.
"So too must our boardrooms have within them a diverse range of skills and experience and operate to the highest possible standards.
"I am very proud to be taking on the role of chair of IoD Scotland, an organisation which has been at the forefront of promoting high standards of leadership and governance."
Former Scottish health minister Susan Deacon is set to become the first woman to chair the Institute of Directors in Scotland.