How do I change JPanel inside a JFrame on the fly?

Your use case, seems perfect for CardLayout.

In card layout you can add multiple panels in the same place, but then show or hide, one panel at a time.

1) Setting the first Panel:

JFrame frame=new JFrame();
frame.getContentPane().add(new JPanel());

2)Replacing the panel:

frame.getContentPane().removeAll();
frame.getContentPane().add(new JPanel());

Also notice that you must do this in the Event's Thread, to ensure this use the SwingUtilities.invokeLater or the SwingWorker

frame.setContentPane(newContents());
frame.revalidate(); // frame.pack() if you want to resize.

Remember, Java use 'copy reference by value' argument passing. So changing a variable wont change copies of the reference passed to other methods.

Also note JFrame is very confusing in the name of usability. Adding a component or setting a layout (usually) performs the operation on the content pane. Oddly enough, getting the layout really does give you the frame's layout manager.

Hope this piece of code give you an idea of changing jPanels inside a JFrame.

public class PanelTest extends JFrame {

        Container contentPane;

        public PanelTest()  {
           super("Changing JPanel inside a JFrame");
           contentPane=getContentPane();
        }

        public void createChangePanel() {
           contentPane.removeAll();
           JPanel newPanel=new JPanel();
           contentPane.add(newPanel);
           System.out.println("new panel created");//for debugging purposes
           validate();
           setVisible(true);
        }
}