Valtteri Bottas to partner Lewis Hamilton at Mercedes in 2017 season
By Andrew Benson
Chief F1 writer
The move, expected since December, also sees Brazilian Felipe Massa come out of retirement to replace the 27-year-old Finn at Williams.
Bottas has signed a one-year deal with the option for more, while Rosberg moves into an ambassadorial role.
Mercedes' young driver Pascal Wehrlein, passed over in favour of Bottas, joins the Swiss Sauber team.
Rosberg's shock retirement, announced just five days after he wrapped up his maiden world title, was a "challenging situation for the team to handle", according to Mercedes team boss Toto Wolff.
"Sometimes in life, unexpected circumstances provide interesting opportunities," he added. "Nico's decision in December was a big surprise.
"But weathering the storm makes you more resilient and we see this as another opportunity for the team to grow.
"I think Valtteri fits very well in our team, as a driver he's very fast, and he has also the heart in the right place.
"He shares our values and passion, and he's modest and humble and he's hard working."
For Bottas, the move is the opportunity of a lifetime. He has been in F1 for four seasons and has shown well at Williams alongside first Pastor Maldonado and then Massa.
Bottas becomes just the fourth driver to compete for Mercedes in F1 since their return to the sport in 2010, following Nico Rosberg, Lewis Hamilton and Michael Schumacher
"It's very exciting times for me," said Bottas, whose best F1 results so far are two second places, at the British and German grands prix in 2014.
"I think it's going to take a while to understand that this is really happening.
"It's definitely another dream come true, to race in another team with such great history - especially in the recent years, which have been so impressive.
"I think with Lewis we are going to be a strong pair together. I really respect him as a driver and a person.
"I'm sure we are going to be close, and we're going to be both pushing each forward. I'm sure we can work as a team."
Wolff has said he will end his ties with the personal management of Bottas' career now the driver is under his employment.
Valtteri Bottas to partner Lewis Hamilton at Mercedes in 2017 season - BBC Sport