Campaigners hailed the move as "a brilliant day for women and a fantastic one for people power" after a 35,000-name petition was presented to the Bank in the wake of the decision to put Sir Winston Churchill on £5 notes in place of prison reformer Elizabeth Fry - one of only two female selections since historical figures were introduced in 1970.
The Bank also announced today that it is reviewing the way characters are chosen to feature on banknotes, given that its choices must "command respect and legitimacy".
It is inviting people to email suggestions on how it can make improvements to its selection process.
The Bank will also consider whether it can do more to act within the spirit of the public equality duty, which compels bodies to make sure they are acting fairly when making decisions.
Austen, who is also famous for her aptly-titled work Persuasion, often gently poked fun at the establishment in her books and highlighted the frustrations of quick-witted women and the barriers placed in their way by society. She will appear on the £10 note within a year of Fry disappearing from the fiver.
She thanked the Bank for listening to her concerns, adding: "To hear Jane Austen confirmed is fantastic, but to hear the process will be comprehensively reviewed is even better."
The Bank said it wanted to reassure people that it was never its intention that none of the historic characters appearing on banknotes would be a woman.
Explaining the reasons behind the review, Bank of England Governor Mark Carney said: "We want people to have confidence in our commitment to diversity."
Current criteria used for selecting banknotes include looking at whether the person has made a lasting contribution which is universally recognised, whether they are a household name and making sure that the choice is not controversial. Both Sir Winston and Austen were selected in this way.
The Governor takes the final decision on the advice of Bank officials, although members of the public have a say in the early stages of the process and are invited to submit suggestions.
The new Austen note will feature the quote: "I declare after all there is no enjoyment like reading!" from snobbish Pride And Prejudice character Caroline Bingley.
An illustration of the book's heroine, Elizabeth Bennet, from a drawing by Isabel Bishop, will also appear.
The banknote will also display a portrait of the author which was adapted from a sketch drawn by her sister Cassandra, as well as an image of Godmersham Park, the home of Austen's brother which was said to have inspired much of her work.
Austen was born in 1775 in Steventon, Hampshire, but, despite her novels never going out of print, she achieved relatively little recognition during her lifetime.
Pride And Prejudice celebrates its 200th anniversary this year and Austen's other celebrated works include Sense And Sensibility, Mansfield Park and Emma. Austen died in 1817 and is buried at Winchester Cathedral.
Former Bank of England governor Lord King had previously said Austen was the leading candidate to replace Charles Darwin on the £10 note.
After taking up his new job as Lord King's replacement, Mr Carney agreed to review the situation and officials recently held a meeting, during which Ms Criado-Perez put her case.
The petition was handed in to the Bank earlier this month by scores of women dressed as inspirational figures such as Suffragette Emmeline Pankhurst, Middlemarch novelist George Eliot and warrior queen Boudicca.
Ms Criado-Perez had raised £13,000 from well-wishers to mount a legal challenge to the Bank during her three-month campaign. The "fighting fund" will now be donated to women's equality campaigning organisation the Fawcett Society as well as charities Rape Crisis and Women's Aid.
Mr Carney said: "Jane Austen certainly merits a place in the select group of historical figures to appear on our banknotes.
"Her novels have an enduring and universal appeal and she is recognised as one of the greatest writers in English literature."
The review will be overseen by the bank's chief cashier, Chris Salmon, and the conclusions will be announced by the end of the year.
People can email their suggestions as part of the review to email@example.com.