Bill Gates, co-founder of Microsoft, had quit as chairman of the company and took new role as technology adviser.
Satya Nadella was chosen as the third new chief executive in the span of Microsoft's 39 years in the industry.
"During this time of transformation, there is no better person to lead Microsoft than Satya Nadella. Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together. His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth," Mr Gates wrote in a statement.
Microsoft, on the other hand, said in a statement that Mr Gates will still be available to support Mr Nadella in shaping technology and product direction. The statement also mentioned that John Thompson, the senior independent director, will now become chairman.
Mr Nadella is an Indian-born executive whom was promoted from executive vice president of the cloud and enterprise group. Impressively, half of his life was spent building a stable relationship with Microsoft.
As the new chief executive, he had to face the challenge of the now gadget-loving generation over software. As how Apple Inc did it - planning its future based on hardware designs, persuading users to exchange their Windows for iOS - capitalising more on design. Mr Nadella now faces the challenge of being toppled by Apple from its place as the largest technology business globally.
Inasmuch as Mr Nadella's exposure was in enterprise computing and most probably will focus in this expertise, he vowed to make Microsoft competitive through innovation and improving people's morale.
Mr Nadella, during his very first speech as the CEO, said that he loves to learn.
"I get excited about new things, I buy more books than I read or finish, I sign up for more online courses than I can actually finish, but the thing about being able to watch people do great things, learn new concepts is something that truly excites me."
For him, becoming Microsoft's CEO was humbling. He felt honoured and excited.
"We have tremendous opportunity, and that's inspiring. I want every one of us to find more meaning at work. We spend far too much time at work for it not to have deep meaning. The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform. A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly," he joyfully said during his speech.
In a personal email to all Microsoft employees, Mr Nadella was emotional.
"Today is a very humbling day for me. It reminds me of my very first day at Microsoft, 22 years ago. Many companies aspire to change the world. But very few have all the elements required: talent, resources, and perseverance. Microsoft has proven that it has all three in abundance. And as the new CEO, I can't ask for a better foundation."