Dungey's new position marks the first time an African-American has led the entertainment sector of a major broadcast network.
"I'm thrilled and humbled that Ben has entrusted me with this tremendous opportunity," Dungey said in a statement. "And I am truly grateful to Paul for being a valued mentor and friend. I've had the great honor of working alongside the talented team at ABC for many years and look forward to starting this exciting new chapter with them."
Dungey joined ABC in 2009, according to The Hollywood Reporter.
Previously, Dungey worked to develop hit ABC shows, including "Scandal," "Quantico," "How To Get Away With Murder," "Nashville," "American Crime" and "Once Upon A Time."
"Channing is a gifted leader and a proven magnet for top creative talent, with an impressive record of developing compelling, breakthrough programming that resonates with viewers." Sherwood said.
Before ABC, Dungey worked in the development and acquisition of "Army Wives" on Lifetime and "Criminal Minds" on CBS.
Dungey's experience before then was in film. She oversaw development of "The Matrix," "Twister," "City of Angels," "Space Jam" and "Practical Magic."
Sherwood reportedly pushed for the executive shakeup after clashing with Lee over the direction of the network, which has had lower ratings compared with other networks, according to The New York Times.
Lee, who joined ABC Entertainment Group in 2010, pushed for dramas like "American Crime" and "Scandal," whereas Sherwood, who comes from TV news, wanted more procedural crime shows.