The former deputy prime minister will head the Tees Valley Inward Investment Initiative, which aims to attract foreign companies to the area.
The move comes after 1,700 lost their jobs when the Redcar Steelworks closed.
The GMB called Lord Heseltine's involvement "insulting" after he said now was a good time to lose a job.
Michael Blench, GMB regional officer, said the area had suffered "devastating blows" with hundreds of jobs also lost at Air Products in Port Clarence and Boulby potash mine.
He said: "For Lord Heseltine to be parachuted into the North is an insult.
"Just a couple of weeks ago it was Lord Heseltine who said insensitively that it was as good a time as any for UK steelworkers to lose their jobs.
"It is alright for the inhabitants of rich parliamentary ivory towers to say that.
"In the real world, Tory policy is creating a Northern Poor House."
Lord Heseltine was criticised in October for comments he made to the Murnaghan programme on Sky.
He said a global over-supply of steel had resulted in the Redcar steelworks closure.
He said: "Very painful for the people who suffer but on the other hand, if you are going to lose your job this is probably a good a time because the number of new jobs in the economy today is one of the most exciting features of this economy compared with many others."
Business Secretary Sajid Javid said: "Michael (Heseltine) has a wealth of experience of working closely with local communities, business acumen and passion for investment and regeneration, and it's a real coup he's agreed to take on this job."
Lord Heseltine said: "It is a great honour to be asked to help with the government response to the sad events in the steel industry in Teesside."
Lord Heseltine's involvement in a scheme to help Teesside's unemployed steelworkers find jobs has been criticised by a union.