Vernon has served as CEO since the consumer packaged food and beverage company's spinoff from Mondelez International Inc. in October 2012. Before that, he was the company's executive vice-president and president of Kraft Foods North America.
Kraft's brands include Jell-O, Maxwell House, Oscar Mayer and its namesake, among others.
While Vernon plans to retire from the CEO post on Dec. 27, he will remain with the Northfield, Illinois-based company through March 31, 2015 as a senior adviser. He will also continue as a board member until the next annual meeting. Vernon will be 59 when he retires as a director.
"With the company on solid footing after the spin-off, the time is right for new leadership to fulfil our potential as the industry leader. The board and Tony agree that we need to accelerate the pace of change," Mackey J. McDonald, lead independent director, said in a statement on Thursday.
Vernon said that he feels "now is the right time to step back and devote time to the one thing I love more than our brands_my family."
Cahill, 57, previously served as chairman and CEO of The Pepsi Bottling Group Inc. He joined Kraft in January 2012 as Executive Chairman Designate of the North American grocery business. He became executive chairman at the company's spinoff and transitioned to a non-executive chairman role in March.
Shares of Kraft Foods rose $1.68, or 2.8 per cent, to $61.24 in morning trading after hitting a high for the year of $61.47 earlier.