According to the Wall Street Journal, Lafley will be replaced as chief executive by current P&G chief operating officer McDonald on July 1. Lafley will remain as chairman.
Lafley joined P&G in 1977 straight from Harvard where he graduated with an MBA, following a stint in the Navy where he was a supply officer.
Like Lafley, McDonald also has a military background. He is a graduate of the US military academy West Point and is a P&G veteran with 29 years' service at the consumer goods giant.
McDonald was appointed to his present position two years ago and was tasked with restructuring P&G's manufacturing and transport system.
There are questions about the timing of the appointment and whether it is related to the company's recent performance.
Despite years of positive growth P&G announced disappointing trading results with overall sales down by 8% to $18.4bn (£11.4) for January to March, largely due to the strength of the dollar.
However, insiders said the appointment has been in the pipeline for a number of years and is unrelated to recent results.
Lafley is credited with having revitalised P&G during his time at the company, doubling sales to $83.5bn in the year ended June 2008 and pushing into the men's grooming sector with the $57bn acquisition of Gillette.
His main strategy has been to focus on premium beauty and household products with higher margins.
McDonald will have his work cut out in his new role as analysts question whether P&G's rate of growth can be sustained.
The company, which has a history of using product innovation rather the new products to drive sales, has come under greater pressure from simpler own-brand products in today's tough economic climate.