Clark made the announcement at the Quails' Gate winery, owned by former cabinet minister Ben Stewart, who will give up his seat so that Clark can call a byelection by next week.
The Liberal leader said she had several offers from other MLAs willing to step down, but decided the Kelowna riding was the "natural fit."
All three seats in the Kelowna area are considered safe seats for the B.C. Liberals, and Stewart won his Westside seat by 6,000 votes, taking nearly twice as many votes as the NDP candidate.
Clark currently lives in Vancouver, where her son goes to school, but has promised to establish a second residence in the city.
The premier noted the historical significance of her decision to run in Kelowna, which was once the riding of former premiers WAC Bennett and his son Bill Bennett.
"We say names like WAC Bennett and Bill Bennett and we think of leadership — two great leaders who shaped our province," said Clark.
She noted it has been decades since a premier has been elected from B.C.'s interior.
"I hope that with the blessing of the people of Westside-Kelowna, I can be the third premier to bring a vision to British Columbia from this community."
Stewart, who founded Quail's Gate estate winery, was first elected in 2009 and served as a cabinet minister in several portfolios, including agriculture.
He said he decide to offer his seat to the premier so Clark would have a chance to deliver on what she campaigned on.
Clark led the B.C. Liberals to a surprising victory in the May 14 provincial election, but was defeated in her own riding of Vancouver-Point Grey by NDP candidate David Eby, a high-profile civil rights lawyer, by more than 1,000 votes.
- See the result from the May 14 provincial election
No date for the byelection has been announced yet, but Clark said it would be called within a week, meaning Westside-Kelowna voters will head to the polls in mid-July.
The NDP has promised to run a candidate in the race.