Stewart, who was jailed last year on insider dealing charges, will assume her role as boss on TV's 'The Apprentice' while still under house arrest when she gets out of prison on March 6.
Trump's turn on reality TV was a big hit in the US where he would utter the line "you're fired" to dumped contestants. There is no word on what Stewart's line will be, although some wags have suggested "you're jailed".
The show, which sees contenders battle it out in a 'Pop-Idol' style contest for the chance to become an entrepreneur, has been a massive ratings success in the US, drawing in 28m viewers to US network NBC in the final episode last month.
Before going to jail, Stewart was famous for her household advice and cooking skills and building up a business empire in Martha Stewart Living Omnimedia.
The winning apprentice will help run part of Martha Stewart Living Omnimedia for one year on a salary of $250,000 (£132,000).
Jeff Zucker, president at NBC Universal Television Group, said: "NBC is delighted to be working with an iconic, self-made, businesswoman such as Martha Stewart, a true entrepreneur who transformed a small catering business into a world-renowned empire."
Executive producer Trump added: "I am thrilled to be able to offer my good friend Martha the opportunity to join me in the success of 'The Apprentice."
Stewart was sentenced to five months in federal prison in July, to be followed by five months of house arrest relating to her sale of ImClone Systems stock before damaging news about the company was made public.
In the wake of her conviction, Viacom, which owns CBS and UPN Networks, pulled Stewart's show 'Martha Stewart Living' off air.
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