The 67-year-old, who works mostly in Tamil cinema, said that he will “form my own political party” ahead of the next Indian state assembly election.
Rajinikanth said it was his “duty to change the system” in Tamil Nadu state.
The state has been politically unstable since the death last year of Chief Minister Jayalalithaa Jayaram.
Jayalalitha was also a former film star.
Addressing a packed hall of cheering supporters in the southern Indian city of Chennai (formerly Madras) on Sunday, Rajinikanth said that his aim was to contest “all 234 seats” in the assembly.
“If I don’t take this decision now, the guilt will haunt me,” he said, adding: “I am not doing it for any post or money or fame as I have enough.”
Fans let off fire-crackers, danced to music and shouted slogans of support following the announcement, AFP news agency reports.
Rajinikanth’s entrance into politics was widely anticipated after the actor dropped several hints that he was considering the move.
In May, Rajinikanth told his fans to be “ready for war” at the right time to take on the “corrupt” political system and a “rotten” democracy.
“If God wills, I will enter politics tomorrow. If I do, I will be truthful and will not entertain the corrupt people,” he said at the time.
Tamil Nadu state plunged into crisis after the death of its former chief minister in December 2016. It eventually led to a split in the ruling All India Anna Dravida Munnetra Kazhagam party, or AIADMK. (Courtesy BBC)