Sinclair was previously editor of Women's Weekly and as a result IPC Connect, the women's weekly division of IPC Media, is now looking for an editor for the title. Both women take up their roles on June 13.
Smith-Sheppard leaves Chat after five years, admitting she was "going at the knees" after months working on both weekly titles.
Pick Me Up was launched in January and has smashed IPC's launch targets, according to IPC Connect publishing director Sandy Gale.
"It's time to hand Chat over to someone who can give it all the love and attention it needs. I am thrilled that person is Gilly," Smith-Sheppard said.
Sinclair has spent seven years as editor of Woman's Weekly, and previously launched and edited GMTV Magazine and edited Family Circle between 1990 and 1996.
"Now I'll probably never learn to knit. I've had a fantastic time editing Woman's Weekly but Chat -- well, it's like reuniting with a first love.
"We may both have tried to grow up and get over it but those feelings run deep and sometimes you can't stop what is meant to be. Passion? Lust? Betrayal? Bring it on," Sinclair said.
The latest ABC circulation figures give Chat sales of 636,301, up 5.2% year on year. Under Smith-Sheppard, it recorded its seventh consecutive circulation increase and accounted for nearly two-thirds of growth in the real life sector over the last three years, according to IPC.
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