Luxembourg Grand Duke announces start of handover to son
"I would like to inform you that I have decided to appoint Prince Guillaume as Lieutenant-Representative in October," Henri, 69, said in a national holiday address.
"It is with all my love and confidence that I wish him the best of luck."
Taking over the title marks the beginning of the transfer of the crown to Guillaume, 42, but a full change in the Grand Duchy will likely take several years.
"This is the beginning of a next chapter for our monarchy," Luxembourg's Prime Minister Luc Frieden told local media.
The move came as a shock to the public, but Frieden said it had been mulled behind closed doors for a while.
"We have been talking about it for some time, and I think that on the national holiday it was the right moment, because the Grand Duke is the symbol of our nation," he said.
Henri, a keen sportsman with a fortune estimated at billions of dollars, assumed the crown in 2000 after his father Jean abdicated following a 36-year reign.
Luxembourg, a small country of some 660,000 people wedged between Belgium, France and Germany, has a constitutional monarchy with a limited role in government.
Luxembourg's parliament in 2008 stripped the monarchy of its legislative role after Henri, a Catholic, refused to sign a euthanasia bill into law.
Guillaume, whose official titles include Prince of Luxembourg and Prince of Nassau and Bourbon-Parma, is married to Belgian aristocrat Countess Stephanie de Lannoy.
The heir to the throne, who has two sons, studied in Switzerland before passing through Britain's elite Sandhurst military college like his father.
Luxembourg, a wealthy hub for financial services with one of the world's highest rates of gross domestic income per capita, has been headed by the family dynasty since 1890.