Treasurer Mr Hockey will go to the backbench, with Social Services Minister Scott Morrison to take over the portfolio, as expected.
Employment Minister Eric Abetz was also relegated to the backbench and his job will be taken over by Michaelia Cash.
She is one of several women being promoted to Cabinet.
Kelly O'Dwyer will be the new assistant treasurer and small business minister.
Mr Turnbull heralded the changes as a "process of renewal".
