The New Hampshire governor's announcement Tuesday that the businesswoman and former government official would become senator came hours after President Barack Obama nominated Gregg to the commerce post.
"I must admit in my wildest, wildest dreams I never thought we would be standing here today," Newman said at a news conference. She has held prominent leadership positions in government, higher education and the private sector but has never held elective office.
Lynch said Newman has agreed to serve only the remaining two years of Gregg's six-year Senate term. Gregg's departure is expected to make the seat more competitive next year for Democrats.
CBS News White House correspondent Mark Knoller reports that Gregg specifically thanked Lynch "for his courtesy and courage in being willing to make this possible through the agreement that we have relative to my successor in the Senate."
Democrats and independents who caucus with them will hold 59 Senate seats if a court case over a race in Minnesota falls their way, and with 60 they would have enough votes to fend off Republican efforts to block legislation. Gregg, however, had indicated he would take the Cabinet job only if the balance of power in the Senate didn't change.
Newman pledged to put the well-being of New Hampshire and the country above partisan politics.
"I am a proud and independent-minded Republican. This assignment is not about politics and business as usual. It is about governing," she said.
Lynch, who said he has known Newman for 40 years, said her party affiliation didn't drive his choice.
"Bonnie is someone I would have considered regardless of party," he said.
The appointment will not become official until Gregg is confirmed for the commerce job.
Newman, 63, was Gregg's chief of staff in the 1980s, oversaw administrative operations for the White House under President George H.W. Bush, and has served as interim president of the University of New Hampshire and executive dean at Harvard's Kennedy School of Government. Despite being a Republican, she was an early and strong backer of Lynch's campaigns.
Gregg said Newman has excelled over the years at the challenges she's undertaken. "I am confident as a U.S. senator, Bonnie will again excel and provide people in New Hampshire with thoughtful leadership and a strong voice in Washington," he said.
Newman would become New Hampshire's second female senator in a matter of months. Democrat Jeanne Shaheen beat Republican incumbent John E. Sununu in November to become the first woman from the state to hold a Senate seat.
Newman, who lives in North Hampton, grew up in Lawrence, Mass., and has an undergraduate degree in sociology and a master's in education in higher education adminstration. In the private sector, she founded a radio station, was executive vice president at Exeter Trust and was president of the New England Council, a regional business association.
Newman said she will resign as lead director on the FairPoint Communications board and from several other boards if Gregg is confirmed.
New Hampshire House Speaker Terie Norelli, a Democrat, praised the choice and said Newman is careful, thoughtful and considerate in her approach.
"It's been my experience that's how she approaches problems," she said.
Norelli said she has no concerns about Newman's party affiliation.
"President Obama ran on change," she said. "This is change."