Simultaneously, the company announced Tuesday that co-founder Bill Gates would resign from his position as chairman and take a role as technical adviser to Nadella, who has been with Microsoft for 22 years and moves into the CEO position with experience as an engineer and an administrator.
"During this time of transformation, there is no better person to lead Microsoft than Satya Nadella," Gates said in a statement.
"Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together. His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth," Gates said.
Microsoft said board member John Thompson, 64, would take the position of chairman.
Nadella has been in charge of the company's development of cloud computing, which is seen as an important opportunity for Microsoft in an era in which the computing world is shifting significantly from personal computers to mobile devices.
"The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform. A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly," Nadella said in a statement.
Nadella, 46, was born in Hyderabad, India, and earned a bachelor's degree in electrical engineering at Mangalore University. He earned a master's degree in computer science at the University of Wisconsin and a master's in business administration at the University of Chicago.
His outside interests include cricket and poetry.