Sestak said he believes his leadership skills would be more useful in a Senate that he characterized as devoid of leadership.
"They just seem to avoid confronting any issue until there's a crisis, and so our nation's careening from crisis to crisis," he told The Associated Press in a telephone interview.
Sestak, a 61-year-old retired Navy officer who reached the rank of vice admiral, was a second-term congressman when he bucked national party leaders and ousted Republican-turned-Democrat Arlen Specter in the 2010 Democratic primary. He lost the general election to Toomey by 2 percentage points.
Sestak's decision removed a huge question mark from the already crowded field of declared and likely Democratic candidates seeking to take on Republican Gov. Tom Corbett in his expected re-election bid next year. They include two former state environmental protection secretaries, John Hanger and Kathleen McGinty; U.S. Rep. Allyson Schwartz; former state revenue secretary Tom Wolf; and state Treasurer Rob McCord.
Several of the Democratic hopefuls offered opinions about its effect on their prospects in the 2014 primary.
In breaking his months-long silence on his political plans, Sestak directed his criticism at the Senate as an institution rather than at Toomey.
"I have spent a lot of time listening to and talking with the people of Pennsylvania ... in their homes, at diners, coffee shops, in (organized) labor and small business gatherings, and VFW halls," he said. "The government of the people has rarely been held in such low regard by the people, undermining our sense of unity - what we stand for and what we are capable of."
A Toomey spokesman said the senator is focused on his duties, not an election more than three years away. The former investment banker served three terms in the U.S House of Representatives and headed the free-market advocacy group Club for Growth in Washington, D.C., for several years before he was elected to the Senate.
"He will continue working to build consensus and lead in Washington like he has on job creation, fiscal responsibility and keeping America safe," said Mark Harris, who managed Toomey's 2010 campaign.
State Democratic Party Chairman Jim Burn asserted that Sestak's decision reflects Toomey's vulnerability.
"We've already found a top-tier candidate, as good a candidate as you're going to find, which in and of itself is a reaffirmation of how vulnerable and disconnected Sen. Toomey is from the state he was elected to serve," Burn said.
Sestak's committee has reported $460,000 in contributions during the first quarter of this year, although its purpose was unclear until he revealed his intentions Tuesday.
On Friday, state Republican Party Chairman Rob Gleason filed a complaint with the Federal Election Commission alleging that Sestak's political committee, Friends of Joe Sestak, violated the law by failing to file a statement of candidacy and a personal financial disclosure report once it raised more than $5,000.
Sestak spokesman Edwin Wee said the FEC advised the committee that no such declaration or disclosure is required of exploratory campaign committees like Sestak's.
Sestak, who lives in the Philadelphia suburbs, vowed to "fully support" whomever the Democratic Party picks to challenge Corbett.
In an unrelated development, Sestak was named the 2013-14 recipient of the General Omar N. Bradley Chair in Strategic Leadership, a joint initiative of Dickinson College, the U.S. Army War College and the Penn State University Dickinson School of Law and School of International Affairs that is named after the World War II hero.
Sestak, whose 31-year Navy career included commanding a 30-ship aircraft carrier battle group in Afghanistan and Iraq, will conduct classes in leadership at the three Carlisle-based institutions.