Schneider, 50, will take over on January 1st, replacing outgoing chief Paul Bulcke who has been nominated to become the company's chairman.
In tapping Schneider for the post, Nestlé — based in Vevey — bucked its near century-long track-record of picking in-house candidates for its top job.
The last time the company selected an outsider as chief executive was in 1922, when banker Louis Dappels was brought in to reverse financial losses.
Nestlé said Schneider's selection points towards a shift in the company's strategy.
With concerns about rising obesity on all continents, the company that has long been associated with fattening packaged foods wants to get in front of a global pivot towards nutrition and health.
In announcing Schneider's hiring, the company's board “reconfirmed the long-term orientation for Nestlé as a Nutrition, Health and Wellness company,” a statement said.
Markets welcomed the move, as Nestlé's stock closed Tuesday up 3.31 percent at 73.45 Swiss francs ($74.80, 67.74 euros) on the Swiss exchange.
Choosing Schneider, a German-US national who thrived as the head of the healthcare company Fresenius, was consistent with that strategy, the board said.
“Schneider will trigger a new era at Nestlé,” Bank Vontobel analyst Jean-Philippe Bertschy wrote.
The new chief's plans may include a “radical” streamlining of the company's product portfolio, especially in traditional areas like chocolate and US frozen foods, while pursuing new opportunities in the health sector, according to Bertschy.
“Nestlé is in need of fresh legs,” Jefferies analyst Martin Deboo said, according to the Bloomberg news agency. “Schneider's track record is exceptional.”
Schneider, who will begin at Nestlé for a transition period in September, said he was honoured to join “an iconic global company”.
“With consumers around the world taking a deeper interest in their personal health and wellbeing, Nestle's industry-leading global food and beverage business positions it well for advancing the vision of Nutrition, Health and Wellness,” he said in a statement.
In a study released this month, the UN-linked Global Nutrition Report said nearly two billion of the world's estimated seven billion people are either obese or overweight.
The World Health Organization has said that affordable, healthy snack options generated by private sector companies are crucial to long-term health on the planet.
Jon Cox, an analyst at Kepler Cheuvreux, said the hiring was a “positive and a clear signal” that Nestlé will “leverage nutrition and health into its food portfolio to drive growth.”
The later years of Bulcke's tenure saw turmoil, especially a damaging recall in India of Nestlé's massively popular Maggi noodles, which the government banned over lead levels.
An Indian court called that decision arbitrary and the noodles are back on the shelves, but the crisis has hurt Nestlé's position in a key Asian market.