Mr Taylor, 47, will work at Smith's for one and a half days a week and be paid an annual salary of pounds 150,000. He will take up the post on 1 November and replace Jeremy Hardie, 60, who is retiring.
Mr Taylor said he had no plans to seek another top chief executive job and will build a portfolio career instead. He is set to join Goldman Sachs as a consultant where he will spend two days a week advising on strategic issues and do some client work.
He is also on the board of a US biotech company and is advising the Government on the tobacco smuggling problem. "I have no plans to take on anything else at the moment. I don't want to take on too much and it is nice to have the odd day off."
Mr Taylor, who is known for his intellectual prowess, said he had enjoyed himself since leaving Barclays last November.
"I have been spending my time reading, travelling and working out what to do next."
Mr Taylor knows WH Smith well as he was a non-executive director of the company between 1993 and 1998. Richard Handover, Smith's chief executive, said Mr Taylor's "extensive business experience" would provide the Smith's board with "invaluable counsel".
Mr Taylor joins Smith's as the group grapples with the challenge of the Internet. It recently acquired Hodder Headline, the book publisher, with a view to taking more control over content. The shares closed 12p higher at 612p.