The group has chosen Shropshire councillor Hannah Fraser for the position to potentially challenge Daniel Kawczynski MP for the Shrewsbury & Atcham seat, if an election is called before May next year.
Councillor Fraser, 43, from Cannon Street in Shrewsbury, already represents the Abbey ward of the town on both Shropshire and Shrewsbury Town Council.
She said she was thrilled to have been chosen for the role.
Councillor Fraser said: "I am absolutely delighted. It is such an important job and it is the first step on the road to potentially becoming an MP.
"It is also another platform to talk about the issues we face in Shrewsbury, like the fact that we do not have decent funding from central government."
Councillor Fraser was selected for the post after Christine Tinker, who stood for the Liberal Democrats in the constituency at the 2015 General Election, decided against contesting the seat again.
Mrs Tinker secured 4,268 votes in the 2015 General Election, finishing in fourth place behind Mr Kawczynski, who received 24,628 votes.
The result also saw the Liberal Democrats fall behind Ukip, with Suzanne Evans securing 7,813 votes in third place.
However, councillor Fraser said she is confident of an improved showing for the Liberal Democrats at the next election. She points to the 15,369 votes secured by 2010 candidate Charles West as indicative of the support in the constituency.
She said: "I think now is a pretty good time for the Liberal Democrats post-referendum. For those people that have also aligned with our values they are more likely than at any time in the last 10 years to vote for us.
"Our membership has grown rapidly and it has grown in Shrewsbury.
"I looked back at old voting records and when Daniel Kawczynski first got elected it was with about 18,000 votes, and in 2010 Charles West got about 15,000 and that makes it seem a lot more doable.
"I do think we could win this seat if it comes up and I will be delighted to give it a good go."