The Republican newcomer will face long odds against incumbent Gov. Jerry Brown, a Democrat who has not yet declared his intention to run for re-election but has amassed $17 million in his campaign account.
Kashkari, an engineer by training, made the announcement during a speech at California State University, Sacramento. He cited the relatively poor performance of California's public school system and unemployment and poverty rates that are among the highest in the country as his main motivations for running.
"The status quo is unacceptable," he said. "Don't let the defenders of the status quo get away with it."
California's schools rank 46th in test performance, he said, while nearly a quarter of the state's 38 million residents live in poverty.
In denouncing those indicators, Kashkari took aim at one of Brown's most important projects—the $68 billion bullet train that Kashkari called the "crazy train."
"Of all of our priorities, of all of our needs that millions of California families have over the next 20 or 30 years, who can possibly argue that spending almost $70 billion on this train makes any sense?" Kashkari told about 400 business and civic leaders.
California has added about 226,000 jobs during the past year, second only to Texas, and the unemployment rate has steadily declined since the end of the recession. It now stands at 8.5 percent, while the national rate is 7 percent.
Kashkari, 40, an Ohio native and son of Indian immigrants, has no political experience and has never before sought public office. Still, he said he has long felt a calling to public service that prompted him to approach Henry Paulson and ask to join him in Washington when Paulson was tapped to become U.S. treasury secretary under former President George W. Bush. Kashkari was working at Goldman Sachs in San Francisco at the time.
Under Paulson, he headed the Troubled Asset Relief Program, in which the federal government helped prop up the country's major banks as the recession deepened.
Kashkari describes himself as a social moderate who supports gay marriage and abortion rights—positions that could be advantageous in overwhelmingly Democratic California. Republicans now make up less than 30 percent of the electorate in the state.
The state's new primary system, in which the top two vote-getters move on to the general election regardless of party affiliation, means he does not have to face the hard-right conservatives who used to dominate California's GOP primaries.
Kashkari joins Republican Assemblyman Tim Donnelly as declared major candidates in the race. Donnelly is a tea party favorite and gun-rights advocate who lives in the San Bernardino Mountains community of Twin Peaks.
Donnelly campaign manager Jennifer Kerns said in an email that Kashkari's bank bailout background "won't sit well with the 2 million Californians who are still out of work today and the hundreds of thousands who had their homes foreclosed in California due to the economic effects" of the Troubled Asset Relief Program.
Former Lt. Gov. Abel Maldonado, another Republican moderate, dropped his campaign last week.
Brown enjoys strong popularity ratings among potential voters and poses a formidable challenge for any opponent. Voters approved the governor's tax increases in 2012 and the state's economy is on the rebound, leading to projected budget surpluses after years of multibillion dollar deficits.
Kashkari's role in the asset relief program from 2008 to 2009 is likely to be one of his biggest liabilities. His campaign team already has sought to blunt possible attacks, noting that the federal government has collected $435.8 billion from program recipients who initially were paid $422.2 billion.
Democrats have sought to portray Kashkari as the inexperienced architect of a program that bailed out the rich.
"If Kashkari truly cares about those issues then he'll support Governor Brown—at least once he gets up to speed on California public policy and the governor's record eliminating the deficit, creating jobs, and fixing schools," said Dan Newman, a political spokesman for Brown.
Kashkari has sought advice from former Florida Gov. Jeb Bush, former Secretary of State Condoleezza Rice and the Hoover Institution.
He said he voted for President Barack Obama, a Democrat, at the height of the financial crisis in 2008 because of the superior economic advice he said Obama received.
Kashkari previously worked in the aerospace industry and most recently was with Newport Beach-based bond investment company Pimco until 2013.