Napolitano, 55, will be the first woman to head the university system in its 145-year history, the Los Angeles Times reported.
"She will bring fresh eyes and a new sensibility -- not only to UC, but to all California," Sherry Lansing, who headed the search committee, said in a statement.
Napolitano has headed DHS since being appointed by President Barack Obama in 2009 at the start of his first term. Former President Bill Clinton named her U.S. Attorney for Arizona in 2003 and she was subsequently elected governor of Arizona before joining Obama's Cabinet.
She graduated from California's Santa Clara University, where she was the school's first woman valedictorian.
In a statement announcing Napolitano's departure, Obama praised her "outstanding work," noting her time at DHS "has included some of the toughest challenges facing our country."
"The American people are safer and more secure thanks to Janet's leadership in protecting our homeland against terrorist attacks," the president said.
"Secretary Napolitano has the strength of character and an outsider's mind that will well serve the students and faculty," California Gov. Jerry Brown said in a statement.