The move is likely to reassure employees and clients, and quell shareholder concerns after the shock resignation of its Chief Executive Vishal Sikka last week spooked investors and wiped billions of dollars from the company`s market value.
Nilekani, credited for driving up Infosys` annual revenue four-fold to $2 billion during his 2002-2007 tenure as CEO, will take over as the non-executive chairman and as a non-independent director with immediate effect, India`s No. 2 IT services firm said in a statement.
Chairman R Seshasayee, Sikka, who was serving as executive vice-chairman after exit as CEO, and two other directors also resigned as part of the board shake-up.
Ravi Venkatesan stepped down as co-chair, but will continue as an independent director on the board, Infosys said.
The Infosys board will try to engage with all shareholders as a matter of priority, Nilekani said in the statement.
Following Sikka`s exit, Nilekani, the architect of India`s ambitious biometric identity programme, was widely expected to return to Infosys, whose board has been tangled in a protracted public spat with founder Narayana Murthy, who accused the board of corporate governance lapses.
Disagreements between founders and the board centered around a rise in Sikka`s pay, the acquisition of Israeli automation firm Panaya for $200 million and a severance package offered to a former finance chief.
Indian media reports on Nilekani`s likely return had already boosted investor confidence and pushed the stock higher over its last two trading sessions.
Shriram Subramanian of shareholder advocacy group InGovern said Nilekani-led Infosys urgently needed to formally address corporate governance concerns raised by the founders.
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