Talking with reporters in Ottawa, Chretien, 70, said he and Martin had decided a new Canadian government would be sworn in Dec. 12. Chretien won three consecutive majority victories for the Liberal Party and is the longest-serving Western leader.
Martin, 65, was officially selected Liberal Party leader last weekend. He said he planned to form a Cabinet quickly.
Chretien plans to travel to a meeting of Commonwealth countries Dec. 5-8 in Africa as one of his last acts as prime minister.
Chretien said: "I feel that while the prime minister-to-be will be forming his Cabinet, I will do this part of the job and so that on the 12th he can be the prime minister. I offer him my best wishes and good luck and I will observe from the sideline."
Chretien had announced his intention to retire in August 2002.