Bailey, who played 125 times for Australia, joined the panel in 2019 and takes on the top job ahead of selecting squads for the T20 World Cup and the Ashes later this year.
Hohns steps down having served collectively on the selection panel for 21 years - 16 as chairman - across two periods from 1991 to 2005 and 2016 to 2021.
"Firstly, I would like to thank Trevor for his incredible work which has helped shape the success of Australian cricket over a long period, including during my days as a player and captain," Bailey said.
"In what can be a challenging job Trevor has always been calm, consistent and approachable. Similarly to his journey, he has made my transition from player to selector as smooth as possible. There is a lot I will take from Trevor's style and very much look forward to the journey ahead."
Hohns' first period as chairman from 1995-2005 involved a period of huge success for the national team which included the 1999 and 2003 World Cup victories plus the record run of 16 Test wins.
He stepped down from his first stint after the 2005 Ashes defeat but returned in 2016. The second spell included the dramatic fallout from the Newlands ball-tampering scandal which required the management of the post-ban returns of Steven Smith, David Warner and Cameron Bancroft that happened during the 2019 Ashes were Australia retained the urn in England for the first time in 18 years.
"The game has been great to me and I have loved every minute of it, from the good times to the bad," Hohns said. "I have been extremely fortunate to be involved with some of the greatest Australian teams of all time and many of the best players to have played the game.
"The successes of the side over the years have been great but I remember my time just as much for the wonderful people you work with and those you meet along the way. It has been an amazing journey for me, but all things come to an end. I am happy with my decision."
Ben Oliver, Cricket Australia's head of national teams, paid tribute to Hohns' service to the game and the qualities of his successor.
"The impact Trevor has had on Australian cricket has been unparalleled over a long period of time," he said. "For someone to have played such an integral part in so many incredible eras is a feat few, if any, ever achieve.
"The role of national selector is one of the most scrutinised in Australian sport and Trevor has performed it with great strength, judgement and humility. We will miss his experience but respect his decision to take a step back from the game and are grateful for his stewardship."
"George is a highly respected leader who is now well established on the NSP alongside Justin as the head coach," he added. "He has brought recent playing experience with a deep understanding of the game, an open and collaborative style and a desire to keep improving the selection function."
Oliver also confirmed a third member of the selection panel would be appointed in the coming months.