Lowe had been expected to join Mercedes once his McLaren contract expired at the end of 2013, having left his position as McLaren's technical director earlier this year.
However, an agreement has been reached between the two teams, allowing Lowe to join Mercedes in two weeks' time.
A Mercedes statement reads that Lowe has been appointed 'Executive Director (Technical) and will work closely with Team Principal, Ross Brawn; Executive Director (Business), Toto Wolff; and the team's senior technical management.'
Brawn will retain overall authority for technical and sporting matters.
"I am excited to become part of a highly talented and capable technical organisation," says Lowe.
"The team has already produced probably the fastest car of the 2013 season while the technical challenges of the new regulations for 2014 will give us the opportunity to maximise the synergies available to a works manufacturer. That is a challenge I am relishing. I have worked closely with Mercedes-Benz for almost 20 years and deeply admire the company's phenomenal commitment to Formula One."
"I am delighted to welcome Paddy to the team and to begin working together," added Brawn.
"He has an excellent record of success in the sport and would be an asset to any of our rivals in the pit lane. It is no secret that every team is facing a significant balancing act between this year and next. But it is perhaps less obvious that we will also see major changes for the 2015 and 2016 seasons, as development progresses with the new generation of car design and Power Unit. To deliver in these circumstances, a successful team needs strength in depth. Paddy's arrival will further strengthen our organisation and puts us in a strong position for the future."