Lewis Hamilton is to leave McLaren after signing a three-year deal to race for Mercedes from next season.
The move, predicted by BBC Sport's Eddie Jordan earlier this month, was announced on Friday, causing huge repercussions throughout Formula 1.
It has forced Michael Schumacher out of Mercedes but it is not clear whether the German legend will go back into retirement or look for another team.
Sauber driver Sergio Perez has signed as Hamilton's replacement at McLaren.
"It is now time for me to take on a fresh challenge and I am very excited to begin a new chapter," said 2008 world champion Hamilton, who will partner Nico Rosberg at Mercedes.
"Mercedes-Benz has such an incredible heritage in motorsport, along with a passion for winning which I share.
"Together, we can grow and rise to this new challenge. I believe that I can help steer the Silver Arrows to the top and achieve our joint ambitions of winning the world championships."
Mercedes team principal Ross Brawn said: "I believe that the combination of Lewis and Nico will be the most dynamic and exciting pairing on the grid next year and I am looking forward to what we can achieve together.
"Over the past three years, we have been putting in place the foundations and building blocks that are needed to compete regularly for the world championship. The potential is now there to match any other team on the grid."
The 27-year-old's new team-mate Rosberg tweeted: "Very cool that Lewis will be my new team-mate! Gonna be another great challenge!"
Hamilton's decision is a huge blow to McLaren, who will now have to do without the speed and inspirational talent of a man they have nurtured since he was 13 years old.
McLaren team principal Martin Whitmarsh said the Briton had written "a huge chapter of his life and career with us", adding: "It goes without saying that we all wish him well for the future."
Hamilton added: "I will be forever grateful for the opportunity that they have given me and for their support throughout the years.
"I have had the pleasure of working with a fantastic team of genuine people and would like to thank them all for their hard work and support."
Although Hamilton's salary at Mercedes will be larger than the one he was offered by McLaren - and he has more opportunity to earn money through personal sponsorships and endorsements - sources close to the Englishman insist he has switched teams with a view to long-term performance.
McLaren have the fastest car this season, while Mercedes have slipped backwards after a promising start to the year.
But Mercedes have sold the move to Hamilton on the basis that they are preparing for a huge push in 2014, when new chassis and engine rules are introduced.
"Mercedes-Benz has supported Lewis throughout his career, from karting, to Formula 3, to our successful partnership with McLaren," said Norbert Haug, vice president of Mercedes-Benz Motorsport.
"It will be a very nice moment for all of us in the team to see him at the wheel of a works Silver Arrow next season, following in the tradition of British Mercedes-Benz Grand Prix drivers Sir Stirling Moss and Richard Seaman."
Schumacher's future is uncertain. Sauber team boss Peter Sauber said a week ago that he would offer the seven-time champion a drive if he became available.
Despite the Swiss team's strong displays this season, that would be seen as a significant comedown for a man who was expected to win on his return.
Instead, Schumacher's comeback after three years in retirement has been a huge disappointment. The 43-year-old German has scored only one podium finish in three years.
In a statement, Schumacher thanked Mercedes for their "trust" and "unconditional commitment".
"I have had three nice years with the team which unfortunately did not go as well as we all would have wanted on the sporting side," he said.
"I wish Lewis well and for the team to achieve the success we worked so hard for in the build-up. I will now concentrate on the next races."
In another development at Mercedes, triple world champion Niki Lauda has been tipped to take a senior management role at the team.