Google co-founder Larry Page is to become chief executive of the US internet search giant in April.
He will take over from Eric Schmidt, who has been in the job for a decade and will become executive chairman.
Google said Mr Schmidt would focus on "deals, partnerships, customers and broader business relationships".
The surprise news came as Google unveiled a strong rise in net profits in the last three months of $2.54bn (£1.6bn) on revenues of $8.44bn.
Mr Page, 37, is reclaiming the job he relinquished to Mr Schmidt, 55, when investors called for a more experienced business leader.
"In my clear opinion, Larry is ready to lead and I'm excited about working with both him and Sergey [Brin] for a long time to come," Mr Schmidt said in a blog posting. Mr Brin, also 37, is Google's other founder.
Mr Schmidt said the management changes, which take effect on April 4, were part of a plan to "streamline" decision making and create clearer lines of responsibility and accountability.
"We've been talking about how best to simplify our management structure and speed up decision making for a long time," Mr Schmidt said.
He added: "Larry will now lead product development and technology strategy, his greatest strengths... Sergey has decided to devote his time and energy to strategic projects, in particular working on new products. His title will be co-founder."
Analysts said that Mr Page was now more experienced, and would carry more weight with investors on Wall Street than he did 10 years ago.
But Brian Pitz, analyst at UBS, added a note of caution. "The Street will think it's a negative, that there is probably some issue going on. Google is trying to get more efficient and trying to get a tech guy in the seat to compete with Facebook.
"I don't think it changes anything strategically where the company is headed," he said.
The surprise news overshadowed strong fourth-quarter profits what were well ahead of analysts' estimates. The $2.54bn profit compares to $1.97bn made in the same quarter the year before.
Analysts said Google appeared to have strengthened its internet advertising machine during the pre-Christmas shopping season, sparking a 26% surge in revenues to $8.44bn.
After subtracting the commissions Google pays to advertising partners, revenues were $6.37bn, about $300m more than analysts had forecast.
Mike Hickey, analyst at Janco Partners, said: "When you see an executive change, you hesitate because generally, it's a disruption at the top. Obviously the numbers look good, so it's a balance between the two."
Shares of Google rose about 2% to $639 in after-hours trading on Wall Street. The company now has a market value of about $200bn and has turned the co-founders and Mr Schmidt into billionaires.