Mascarenhas, who only started the Otago job at the start of last season, was brought in to help coach the Black Caps bowlers for the tour of England a couple of months ago.
His work has impressed New Zealand Cricket bosses and he has signed a two year deal with the team.
New Zealand Cricket head of cricket Lindsay Crocker, who was in England for the test series, said feedback from the Black Caps on Mascarenhas' performance had been overwhelmingly positive, leading to an offer to fill the role fulltime.
''Dimitri has impressed in the short time he's been with the Black Caps and we're delighted he's accepted the offer to continue working with the side,'' Crocker said.
Mascarenhas - a former England international - was appointed in an interim role following the departure of Shane Bond in April. Bond left to coach in the IPL.
Both coach Mike Hesson and captain Brendon McCullum have been pleased with his contribution on the tour and have watched him develop excellent working relationships with the bowling group. Mascarenhas, as well as being the Black Caps bowling coach, will have duties including involvement in NZC's coach education initiative, and in the High Performance Centre's winter and A squad training programmes.
Mascarenhas (37) said he could not wait to take on the challenge fulltime.
''I'm very much looking forward to being part of this organisation and playing my part in helping us progress further,'' he said.
''The Black Caps are blessed with some outstanding bowlers and it was a privilege to be involved with the side during the test win in Leeds.
''My immediate aim is to assist the incumbents' continued development and to help maintain a healthy depth in New Zealand Cricket's elite bowling stocks.''
With the departure of Mascarenhas, the hunt for Otago's next coach will begin, and the Otago Cricket Association will not want to waste too much time finding its man.
