Corruption allegations have tarnished Zuma's image as well as eroded his support base and he was ordered last month to appoint a judicial inquiry into the alleged graft within 30 days.
The beleaguered leader has faced growing pressure to resign before his term as president ends in 2019.
Zuma's announcement comes the day before parliament is to take up a draft of a process for removing the nation's president from office.
The Constitutional Court had ruled nearly two weeks ago that MPs failed to hold Zuma accountable for the millions in public money used to upgrade his personal residence.
In power since 2009, Zuma stepped down in December as president of the ruling African National Congress (ANC) party after a 10-year tenure marked by numerous court judgements against him.
"The allegations that the state has been wrestled out of the hands of its real owner‚ the people of South Africa‚ is of paramount importance and are therefore deserving of finality and certainty‚" Zuma said in a statement.
"The matter cannot wait any longer," he said, adding: "I have decided to appoint a commission of inquiry."
He said further delays in appointing the commission would make the public doubt the government's commitment to dismantling "all forms of corruption" and entrench "the perception" that the state has been captured by private interests.
Zuma said the commission would be headed by Deputy Chief Justice Raymond Mnyamezeli Mlungisi Zondo.
South Africa's main oppostion Democratic Alliance (DA) cheered the creation of the probe.
"The commission is a step towards ridding the country of corruption, and must do its work without delay," DA leader Mmusi Maimane said in a statement. 
An ANC supporter holds party paraphernalia with the face of the new African National Congress President, Cyril Ramaphosa. Source: AAP
Out as ANC leader
In 2014 Zuma had failed to abide by recommendations made by the country's anti-corruption watchdog over $15 million (12.5 million euros) of taxpayer-funded refurbishments at his personal home in the eastern KwaZulu-Natal province.
After the Constitutional Court found against him, he eventually reimbursed the equivalent of around $500,000 for non-security-related work at his homestead, a sum set by the treasury.
In 2016 a damning report questioned Zuma's dealings with the Guptas, a wealthy family of Indian origin, who allegedly were granted influence over his cabinet appointments.
Last month also saw Zuma suffer another blow when his vice-president Cyril Ramaphosa, who campaigned on an anti-corruption ticket, was elected ANC president after seeing off Zuma's former wife Nkosazana Dlamini-Zuma.
Ramaphosa is set to distance himself from Zuma as the ANC seeks to retain its absolute majority in next year's general elections even if the latter still retains a constituency of support within the movement after 10 years as its leader.
Before taking office, Zuma dismayed the nation during his 2006 rape trial when he told the court he had showered after having unprotected sex with his young HIV-positive accuser to avoid, he said, contracting the virus.
The claim incensed safe-sex campaigners -- not least because Zuma was head of the country's national AIDS council at the time.
Zuma was acquitted of rape but is often mocked in newspaper cartoons depicting him with a shower nozzle sprouting from his bald head.
