McQueen, who was raised in Dunedin and lived in or near the city until her move to Bluff 13 years ago, will receive a minimum of $70,000 over two years to fund her writing and activities to promote poetry.
She said it was nice to hear people were reading her poetry, which she believed had a place in the everyday world.
"It also means that for two years I'll have an income I can be sure of, because for the past 30 years I've stubbornly gone on being a poet living on the edge."
The award, administered by the National Library, was announced by the Minister responsible for the National Library, Nathan Guy, at a ceremony at the library last night.
McQueen is New Zealand's seventh poet laurate and the second since the position was taken over by the National Library.
Born in England, McQueen came to Dunedin as a 4-year-old.
She was educated at Columba College and graduated from the University of Otago with an MA (hons) in 1971.
She was a secondary school teacher for many years before turning to writing full-time in 1985 and 1986 when she held the University of Otago's Burns Fellowship.
She has written 10 books of poetry, several of them award winners.
A recent CD, A Wind Harp (2006), is also devoted to her work.
She has won three New Zealand Book Awards, a Fulbright Visiting Writer's Fellowship and a Goethe Institute Scholarship to Berlin.
Last year, she received an honorary doctorate in literature from Otago.
She was married to artist Ralph Hotere in the 1970s.
Speaking at last night's ceremony, the National Library's Maori, pacific and international director John Mohi said the library was delighted to have a poet of McQueen's stature and ability as a performer of poetry as poet laureate.
"As well as producing a collection of poetry, the poet laureate's role is to raise national awareness of the value of reading and writing poetry.
"We look forward to working with Cilla to shape a vibrant programme of activities, while balancing her need for time to write."
