On Sunday, Campbell celebrated his 36th birthday as the new coach of the Cyclones.
Iowa State announced the hiring Sunday afternoon, saying Campbell has agreed to a six-year contract starting at $2 million for 2016. Campbell will replace Paul Rhoads, who was fired a week ago after seven seasons.
Campbell is now the youngest coach at a Power 5 school. He went 35-15 in four seasons with the Rockets, including 9-2 this season with victories over Iowa State and Arkansas.
"After we played the Cyclones in Ames, I called my wife and said, 'You simply would not believe this place,'" Campbell, who will address the media Monday, said in a statement. "Their fans, the game-day environment and facilities are all incredible. I could see us living in Ames and me coaching the Cyclones someday."
Iowa State will pay a $200,000 buyout to bring Campbell aboard, sources told ESPN.
Rockets athletic director Mike O'Brien said Saturday that the school had offered Campbell a contract that would have made him the highest-paid coach in the Mid-American Conference.
Toledo is scheduled to hold a 5 p.m. ET Sunday news conference with O'Brien. Defensive coordinator Jon Heacock will be named interim coach for the Rockets, a person with knowledge of the decision told The Associated Press.
According to USA Today's coaching salary database, Western Michigan coach P.J. Fleck is making $800,000 this season, which is the MAC's highest salary. Rhoads made $2.2 million this year at Iowa State, which also owes Rhoads a $4.5 million buyout.
Campbell's first win came in the 2011 Military Bowl after Tim Beckman left Toledo for Illinois. The Ohio native then went 9-4 and 7-5, and the Rockets beat Arkansas State in a bowl game last season for another 9-4 finish.
The Rockets started 7-0 this fall before a loss to Northern Illinois. Western Michigan stunned Toledo 35-30 on Friday, handing NIU the division title and likely speeding up Campbell's departure for Ames.
Campbell was an offensive coordinator prior to taking over as Toledo's head coach, and the Rockets averaged at least 31 points per game in each of his first four seasons.
He will take over an Iowa State program with a long history of finishing at the bottom of the Big 12 heap. Iowa State went 8-28 in its last three seasons under Rhoads, a popular and energetic coach who took the team to three bowls in his first four seasons.
The Cyclones will bring back Mike Warren, who rushed for 1,339 yards as a freshman, and star wideout Allen Lazard. Sophomore quarterback Joel Lanning was up and down after taking over as the starter midway through this season, but he showed plenty of promise as a runner and a passer.
Iowa State will lose four starters on its offensive line, but the Cyclones return as many as nine starters on their defense -- including six in their front seven.
The Cyclones weren't expected to be big-time players in a flooded coaching market, but they made a pre-emptive move to grab one of the nation's brightest young coaches. Campbell's first season as coach brings a brutal schedule, with trips to Iowa, TCU and Oklahoma State in the first six weeks.
Iowa State will likely show patience with Campbell. But the Cyclones have revamped their facilities and stadium greatly in recent years and appear set for a more serious push toward relevance in the Big 12.
"Matt's coaching and playing achievements are extraordinary, but we were even more impressed by his character, leadership and commitment to his family," Iowa State athletic director Jamie Pollard said.
The Associated Press and ESPN staff writer Adam Rittenberg contributed to this report.