Chalmers will replace George Culmer in June this year subject to regulatory approvals, the bank said in a statement on Friday.
Poaching Chalmers from Morgan Stanley will cost the bank £4.4 million for the incoming CFO's forfeited share awards.
Chalmers will be paid a basic salary of £794,938, slightly higher than Culmer's pay in 2017 of £779,351.
He will also receive a fixed share award of £504,000 delivered in stock over five years. Culmer received the same fixed share award.
Chalmers is currently co-head of Morgan Stanley's Global Financial Institutions Group, having joined in 2000 from rival JPMorgan.
Lloyds announced Culmer was stepping down after its third-quarter results last year.
Over seven years as CFO Culmer helped the bank recover heavy losses and return to profit, allowing the British government to sell down its stake bought during the 2008 financial crisis.
"William has a proven track record in financial services and will be a great addition to the executive team," said António Horta-Osório, chief executive of Lloyds.
"I very much look forward to joining the executive team at Lloyds Banking Group. It is a tremendous company that is going through an impressive transformation. I look forward to getting started and making a contribution," Chalmers said.
(Reporting by Iain Withers; Editing by Rachel Armstrong)