NBC announced on Wednesday afternoon that Leno will host his final "Tonight Show" from the Burbank studios next spring and Fallon will take over shortly after that.
The show will be moved from California to its original home in New York City's 30 Rock and will be executive produced by Saturday Night Live chief Lorne Michaels.
"We are purposefully making this change when Jay is #1, just as Jay replaced Johnny Carson when he was #1. Jimmy Fallon is a unique talent and this is his time. I'm thrilled he will become the sixth host of 'The Tonight Show' at exactly the right moment," said Steve Burke, Chief Executive Officer of NBCUniversal.
The move will be the second time that Leno has tried to retire from the late night comedy show.
In 2009, Leno was removed as the host of "Tonight" to be replaced by Conan O'Brien.
The switch up didn't work and after nine weeks O'Brien went back to his hosting chair at "Late Night with Conan O'Brien" while Leno claimed his role as host of "Tonight".
The failed move left tensions between Leno and NBC executives that Leno says aren't a problem this time around.
"The main difference between this and the other time is I’m part of the process," Leno told the New York Times in an interview.
"The last time the decision was made without me. I came into work one day and — you’re out." This time around "there really aren’t any complications like there were the last time," he added. "This time it feels right."
There does not seem to be any bad blood between Leno and Fallon, who joked with each other Wednesday as news of the swap was released.
"Congratulations Jimmy. I hope you’re as lucky as me and hold on to the job until you’re the old guy. If you need me, I’ll be at the garage," said Leno.
Jimmy responded, "I’m really excited to host a show that starts today instead of tomorrow."
There has been no announcement about who will fill Fallon's shoes on 'Late Night'.