Wagener, 39, currently heads Mercedes' advanced design department, which develops designs for future concept cars. He is also director of the automaker's design studios in California and Japan.
Nick Margetts, an auto analyst at JATO Dynamics in Cologne, Germany, said recruiting someone in-house was a smart move.
"It is far more risky to recruit someone from outside the company and entrust your product line to them for the next five to 10 years. It's safer to hire someone who is Mercedes through and through and won't make too radical a departure from the current design language," Margetts said.
Wagener will succeed Pfeiffer, 65, when he retires in the summer after 40 years at the German premium brand.
Wagener joined Mercedes in 1997. His team designed Mercedes' futuristic F 700 concept, which debuted at the 2007 IAA in Frankfurt.
Pfeiffer began his career as a designer with Ford in Germany in 1963 and joined Daimler-Benz five years later. He headed the team that designed the current S-class upper-premium sedan in 2005. The S-class design language has filtered down Mercedes' lineup.