Suella Braverman has been sacked as home secretary, after she defied No 10 over an article accusing the Metropolitan Police of bias in the policing of protests.
Mrs Braverman was accused of stoking tension ahead of protests in London.
James Cleverly is her replacement at the Home Office, with former prime minister David Cameron unexpectedly replacing him as foreign secretary.
She said serving as home secretary was "the greatest privilege of my life".
Mrs Braverman's sacking kickstarted a major cabinet reshuffle by Rishi Sunak, as he reshapes his top team ahead of next week's Autumn Statement.
Steve Barclay has replaced Therese Coffey as environment secretary, with Treasury minister Victoria Atkins promoted to replace him as health secretary.
Meanwhile, former transport minister Richard Holden has been appointed Tory party chairman, and Laura Trott becomes chief secretary to the Treasury, replacing John Glen.
David Cameron has been out of Parliament since he stood down as prime minister in 2016 and has been given a seat in the House of Lords to enable him to take up his new position.
The Liberal Democrats are calling for his peerage to be blocked, referring to his lobbying for collapsed finance company Greensill Capital.
Senior Labour MP Pat McFadden said the former PM's appointment "puts to bed the prime minister's laughable claim to offer change from 13 years of Tory failure".
Commons Speaker Sir Lindsay Hoyle has said he has asked parliamentary officials for advice on how MPs can hold Lord Cameron to account, adding this is particularly important amid current international crises.
Since her elevation to home secretary by former PM Liz Truss, Mrs Braverman has been seen as a standard bearer for the right in the Conservative Party.
In a statement, Mrs Braverman said: "I will have more to say in due course", leading to speculation she may cause trouble for the leadership.
She lost her job following days of a political firestorm sparked when she wrote an article for the Times newspaper, accusing the police of applying a "double standard", by taking a tougher stance with right-wing demonstrations.
It later emerged Mrs Braverman had defied a Downing Street request to tone the article down.
Labour, the Liberal Democrats and some Tory MPs had called for Mrs Braverman to be sacked.
Shadow home secretary Yvette Cooper said Mrs Braverman actions were "highly irresponsible" and inflamed tensions, making the job of the police harder.
She said the "buck stops" with Mr Sunak, who should "never have reappointed" Mrs Braverman.
Lord Cameron said he wanted to be "part of the strongest possible team that serves the United Kingdom" ahead of the general election.
"Though I may have disagreed with some individual decisions, it is clear to me that Rishi Sunak is a strong and capable prime minister, who is showing exemplary leadership at a difficult time," he said.
In July, Mr Cleverly said he would have to be dragged out of his foreign secretary job "with nail marks down the parquet flooring".
But on Monday, Mr Cleverly said it has been a "huge privilege" to serve as foreign secretary, and that being home secretary was a "fantastic job".
He refused to be drawn on whether he would distance himself from Mrs Braverman's time in the Home Office. "I intend to do this job in the way that I feel best protects the British people and our interests," he said.
Mr Cleverly inherits some major challenges from his predecessor.
Top of the pile is the still raging row over pro-Palestinian protests in London. Downing Street is understood to want him immediately to review police powers to make it easier to ban marches and prosecute those glorifying terrorism.
Less than two days into the job, Mr Cleverly will have to deal with a Supreme Court decision on the lawfulness of the government's Rwanda policy.
Even if the government wins, the policy is likely to see further legal challenges from individual asylum seekers attempting to avoid being sent to Rwanda.
'Wasted talent'
This is the second time Mrs Braverman has been removed as home secretary. She was forced to resign as Mrs Truss home secretary after it was revealed she had shared confidential cabinet papers with long-time ally Tory MP Sir John Hayes.
There were suggestions she was a "politically useful pressure valve" for Mr Sunak - allowing him to indirectly signal approval for right-wing populist policies without having to make those statements himself.
But that appears to be at an end, with the return of Lord Cameron - who headed a coalition government with the Lib Dems - shoring up the Conservatives' liberal wing.
In other reshuffle moves:
John Glen moves to the Cabinet Office, and Greg Hands becomes a business minister
George Freeman resigns as science minister, a role he was appointed to in February
Jeremy Quin, who attended cabinet as a junior minister, has stepped down from the Cabinet Office
Rachel Maclean said she was asked to stand down as housing minister - the sixth minister to the role in the last three years
Long-serving Schools Minister Nick Gibb announced he was resigning and would step down as an MP at the next election
Neil O'Brien said he had left his role as health minister
Will Quince resigns as a health minister, while Jesse Norman has left his role as a transport minister.
Mrs Braverman's return as home secretary for Rishi Sunak was a political surprise. Under his leadership, she carved out a reputation as a right-wing outrider in Mr Sunak's government often grabbing headlines with her comments.
Sir Jacob Rees-Mogg called Mrs Braverman's sacking "a mistake" that will hit the Conservatives' chances of winning the next general election.