Sauber has always made it clear that he did not want to be running the team when he turned 70 next year, and has decided that now is the right time for the change to take place.
Kaltenborn becomes the new team principal with immediate effect, and Sauber will continue in his role as president of the Sauber Group's board of directors.
Speaking about the change, Sauber said: "We decided a long time ago that Monisha would take over from me, but we left the timing open.
"Now is a good time for both of us, so this is the right moment to pass on the baton. After all, there have been a number of races I’ve been unable to attend - most recently the Japanese Grand Prix, where the team put in an excellent performance.
"I'm in no doubt that Monisha has all the necessary skills to be an outstanding team principal, and I’m equally certain she will ensure that the values underpinning the company live on. That is very important to me."
Kaltenborn, who originally joined Sauber in 2000 as head of its legal department, has been CEO since January 2010 and owns a third of the company.
She is excited about her new responsibilities – and will become the first female F1 team principal.
"Naturally I’m very aware of the major responsibility I have for Peter Sauber’s racing team," she explained. "He founded the team over 40 years ago, and in the spring it will be 20 years since Sauber lined up for its debut Formula 1 grand prix.
"We are the fourth-oldest team in F1. To build up a project like this and keep it alive in a difficult environment is a tremendous achievement. I have set my sights high and am committed to taking the team forward as Peter Sauber would want and leading it on to success."
Sauber is currently sixth in the constructors' championship, just 20 points behind Mercedes with five races to go.
- Peter Sauber