Dehradun-born Monisha Kaltenborn will take over the reigns of the Swiss-based team from Peter Sauber. GETTY IMAGES
Sauber, who turns 69 on Saturday, will continue as president of the board of all Sauber group companies and retain responsibility for strategic direction.
The cigar-smoking Swiss said previously he wanted to stand back and did not intend to be on the pit wall at the age of 70.
Apart from being the first woman in the role, Kaltenborn, who is an Austrian citizen, is the second India-born principal in the 12-team sport after Force India's Vijay Mallya.
"We decided a long time ago that Monisha would take over from me but we left the timing open. Now is a good time for both of us, so this is the right moment to pass on the baton," said Sauber in a statement.
"There have been a number of races I've been unable to attend, most recently the Japanese Grand Prix, where the team put in an excellent performance.
"I'm in no doubt that Monisha has all the necessary skills to be an outstanding team principal, and I'm equally certain she will ensure that the values underpinning the company live on. That is very important to me."
Sauber, who made their Formula One debut in 1993, have had four podium finishes in 15 races so far this season with Japanese driver Kamui Kobayashi third at his home Suzuka circuit last Sunday.
The team are currently sixth overall. Their other driver, Mexican Sergio Perez, has had three podium finishes and is joining McLaren at the end of the season.
Kaltenborn joined Sauber in 2000 to run the legal department and took over as CEO in 2010. Sauber transferred a third of the company shares to her last year.
"We are the fourth-oldest team in Formula One. To build up a project like this and keep it alivein a difficult environment is a tremendous achievement," she said.
"I have set my sights high and am committed to taking the team forward as Peter Sauber would want and leading it on to success."