The announcement on his Facebook page ends months of local media speculation that the 59-year-old conservative would return to the fray after his defeat by Francois Hollande in 2012.
"I am a candidate for the presidency of my political family," he said.
"I will propose reforming it from top to bottom so as to create, within three months, the basis of a new and broad movement that can speak to the French as a whole ... This broad movement will adopt a new project," he added.
A hyperactive and divisive figure reviled by many left-wing voters, Sarkozy is seen by his supporters as the only politician capable of rallying the fractured center-right UMP party to a victory in 2017. But any political comeback could be tripped up by a series of legal troubles hanging over his head.
Sarkozy, who credits himself with having helped steer Europe through its worst economic and financial crisis since the Great Depression before being voted out, said he used his temporary withdrawal from politics to reflect and talk to ordinary French people.
"I have seen the rise, like an unstoppable tide, of disarray, rejection and anger ... Among many French people, I saw the temptation to no longer believe in anyone or anything," he said.
"This absence of all hope, so peculiar to France, now forces us to completely reinvent ourselves."
Gradually emerging as the leader of the French right in the mid-2000s, Sarkozy cast himself as a reformer with bold ideas who would break with France's past.
His aggressive, American-style manner both attracted and repelled voters as he pledged to reform the country's labour markets and tax system to bolster industry and job creation. He stood down hundreds of thousands of strikers to raise France's retirement age to 62 from 60.
In foreign policy, he brokered a ceasefire to end a short-lived war between Russia and Georgia in 2008 and championed an international military intervention in Libya three years later.
However, a widespread public perception that he was on the side of the rich earned him the tag of "President Bling-Bling" and little sympathy with voters feeling economic hardship.
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now