The DAX will expand from September 2021 to 40 from the current 30 companies and membership criteria will get tougher, exchange operator Deutsche Boerse said on Tuesday.
The overhaul is in part a reaction to the collapse of Wirecard, the German payments company that earlier this year dramatically fell from grace just two years after its promotion to the benchmark index.
The company's demise embarrassed the German government and stained the nation's reputation as a safe haven investment.
Deutsche Boerse said the changes would increase the quality of the DAX indexes and align them with international standards.
"A broader DAX means more diversification and more stability," said Ingo Speich, head of sustainability and corporate governance at fund manager Deka.
Since its founding in 1988, the DAX has been Germany's answer to the Dow Jones Industrial Average in New York and the FTSE in London, with 30 members forming the corporate elite in one of the world's largest economies.
Most of the index's founding members have since dropped out, including German stalwarts Commerzbank, ThyssenKrupp and Lufthansa. Wirecard departed earlier this year after it filed for insolvency, owing creditors billions in what auditor EY described as a sophisticated global fraud.
The expansion was pushed by Deutsche Boerse Chief Executive Theodor Weimer and had faced opposition from some investors.
New rules impose a profitability requirement. To be considered for the DAX, a company must have had positive earnings before interest, taxes, depreciation, and amortization for the previous two financial years.
The rules will also allow companies to be expelled from the index after a 30-day warning if they fail to publish audited annual and quarterly earnings - something that Wirecard failed to do when it ran into trouble.
Members' supervisory boards must also form audit committees.
Meanwhile, the number of constituents in the mid-cap index will shrink to 50 from 60.
(Reporting by Tom Sims and Hans Seidenstuecker; Editing by Christopher Cushing and Mark Potter)