The Democrat had been mum on running since Levin announced he wouldn't seek re-election in 2014. Odds of her running were low.
But she made it official Friday with a Facebook post, saying, "It's just not right for us" and calling it a "family decision."
Granholm moved to California after leaving office at the end of 2010 to teach and be closer to her parents.
Potential candidates for Levin's seat are U.S. Reps. Gary Peters, Dan Kildee and national committeewoman Debbie Dingell. Some Republicans interested in running include U.S. Reps. Mike Rogers and Justin Amash, along with former Secretary of State Terri Lynn Land and ex-state party chairman Saul Anuzis.