Sheens' manager Chris Orr indicated to Tigers powerbrokers last week that the 72-year-old wanted to move aside at season's end, despite having a year to run on his deal.
Four-time premiership winner Sheens replaced Michael Maguire on a two-year contract in July last year.
Marshall was groomed as his assistant with a view to taking the top job in 2025.
The succession strategy, which club chief executive Justin Pascoe said at the time would provide "a rock-solid coaching plan for the next five years", has been forced into a rethink by Sheens' decision to step aside.
The Tigers are bottom of the ladder with three rounds to go and are facing a 12th-straight year without finals football.
"As a club we could not be happier with what Tim has done for us in terms of transitioning Benji," Tigers chairman Lee Hagipantelis told AAP.
"Tim was engaged for a particular purpose and that was to transition Benji.
"Tim feels that transition is complete and Benji is ready to step up.
"He takes the view that if you're good enough, you're old enough and he takes the view that Benji is ready."
Prior to the start of this season, Sheens had spent the best part of a decade coaching in England's Super League.
Hagipantelis was adamant Sheens, whose side are staring at a second-successive wooden spoon, made the decision to walk away of his own volition last week.
"It was following that outreach (from Orr) that these conversations were undertaken, all with Tim's engagement and blessing," Hagipantelis told AAP.
"Suggestions, which I've read, about us terminating or knifing Tim are demeaning to all involved."
Marshall has never held a head coaching position at NRL level and will be on the hunt for an assistant to fill the role he is vacating.
Former Cronulla coach John Morris, who shares the same management company as Sheens, has been mooted as a possible assistant to add to Marshall's coaching staff.
"I am humbled by Tim's endorsement as the future and long-term head coach of Wests Tigers," Marshall said in a statement on Wednesday.Â
"To be the head coach of Wests Tigers has been a long-held dream of mine since retiring from playing.
"I am very grateful for the opportunity to take on the role and I am indebted to Tim for all that he has taught me, both as a player and as an assistant coach."
Regardless of his official title, Marshall has been hands-on at Tigers training sessions throughout this season.
The former New Zealand international also stood his ground in discussions over signing targets, with Marshall butting heads with recruitment boss Scott Fulton.
The Tigers have signed Fainu brothers Samuela and Latu from Manly for 2024 and have also been linked to former Canberra halfback Aidan Sezer, who currently plays for Super League club Leeds.
