Mexican Esteban Gutierrez, the current test and reserve driver in a heavily Mexican-backed team, appears the frontrunner for the second seat and will take part in a young driver test after this weekend's Abu Dhabi Grand Prix.
Hulkenberg, 25, won the GP2 support series in 2009 and had a debut season at Williams in 2010 before being dropped to make way for well-funded Venezuelan Pastor Maldonado last year. He returned this season with Force India.
Wednesday's announcement had been an open secret in the paddock for weeks.
"We've been observing Nico for some time now and his performances have been very persuasive," Sauber principal Monisha Kaltenborn said. "That was the case in GP2 and has continued into Formula One.
"An obvious highlight was how he scored pole at Interlagos in 2010 despite the most challenging external conditions. He clearly showed that he can seize the chance if it arises."
The German described Ferrari-powered Sauber as a team where young drivers had repeatedly been able to deliver exceptional performances.
"I would like to take up that baton," said Hulkenberg. "The Sauber F1 Team is currently going through a very positive development and I'm certain that together we can achieve a lot."
The move opens up a slot at Force India, with co-owner Vijay Mallya suggesting at the weekend that Hulkenberg's compatriot Adrian Sutil, his predecessor at the team, could be in the frame for a return.
Force India's other driver is Britain's Paul Di Resta.
"We would like to thank Nico for all his hard work and wish him well. It has been a pleasure to have him in the team," Mallya said on Twitter.