Kikwete has been under pressure to revise the constitution since winning re-election on October 31, with the opposition calling for limits on the president's powers and reform of the electoral law.
Several hundred protesters marched in the commercial capital Dar es Salaam on Tuesday, calling for a new charter, and police fired teargas to disperse them.
"I believe that time is now ripe for a new constitution that takes into account various social and economic changes," Kikwete said in his New Year address to the nation.
"We need a constitution that copes with the challenges of the 21st century," he said in a speech broadcast live by television and radio stations.
The previous constitution covering mainland Tanzania and the islands of Zanzibar was drawn up in 1977 but Zanzibar also has its own treaty dating from 1984.
Kikwete said he would appoint a commission to co-ordinate the collection of views of people from all walks of life to inform the new constitution.
"The Constitutional Review Commission which I am forming will be headed by a seasoned lawyer, with representation from all groups in our society.
"The members will be drawn from both parts of our country -- Zanzibar and Tanzania mainland," Kikwete said.
"It is supposed to get views from politicians, academics, business, clerics, youths and the elderly. No group will be discriminated against or left out in the exercise," he said
The commission would forward its recommendations to the government and the relevant authorities would draft the new constitution.
"I hope the exercise will be conducted peacefully and thoroughly. We don’t expect riots and name-calling in the exercise, in which all Tanzania are expected to emerge winners," the president said.
Opposition leaders argue that the current constitution favours the ruling party.
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