Menezes, 52, has been president of Diageo's biggest region North America since 2004, and will take up his new role on March 1. He will lead Diageo's operating business globally, making him the leading internal front-runner for the top job.
Walsh, who turns 57 in May, is expected to remain in his role until the summer of 2014 to see his three-year drive to increase sales, margins and earnings through to completion. If the strategy were to progress well, he may leave earlier.
Menezes's move mirrors Walsh's own journey to the top. He was appointed COO at the start of 2000 with the stated aim of taking over as chief executive from John McGrath. By September that year he had moved into the top role.
Menezes has a strong reputation with the market and would be viewed by many, we believe, as the natural successor to the current CEO, said analyst Charlie Mills at Diageo's house broker Credit Suisse.
His new role will see him work closely with the board in a global capacity and be assessed against external candidates eventually for the top job, the group said.
Menezes, a naturalised American born in India, joined Guinness in 1997 in the same year it joined with Grand Metropolitan to form Diageo. He was appointed president of its North American region in January 2004, an area which produces around 40 percent of the group's profits.
Though no timeframe is given or implied, we assume this means a 12-18 month opportunity to assess the internal candidate before he is presumably benchmarked against external candidates for the top job ... some time next year, said Mills at Credit Suisse.
Menezes's current role also includes being chairman of the group's Asia Pacific and Latin America & Caribbean regions, meaning he will effectively add responsibilities for Europe and Africa to cover the whole world.
He will be replaced in his current North American role by the group's United States head Larry Schwartz.
Diageo shares were down 1.1 percent at 1,490 pence by 1005 GMT after going ex-dividend in a flat blue-chip market <.FTSE>.
Diageo stock is ex-dividend today. However, we expect the shares may enjoy some support in the near term from a perception in the market that more management change is possible in the coming months, said analyst Simon Hales at Barclays Capital.
(Reporting by David Jones; Editing by Dan Lalor)