Calling Warren "one of the country's fiercest advocates for the middle class," Obama said the new bureau would end abusive practices.
"Never again will folks be confused or misled by pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans," he said, standing alongside Warren and Treasury Secretary Timothy Geithner in the Rose Garden.
Obama credited Warren with developing the concept of the consumer agency, and said, "It only makes sense that she should be the architect."
But Obama is not nominating Warren to be the consumer bureau's director, a move that allows her to avoid a lengthy fight with Senate Republicans who view her as too critical of Wall Street and big banks to be confirmed.
The business and banking community opposed Warren as director, believing that she would establish an aggressive agency.
Because she is not being named director, Warren can assume her duties immediately. Obama said Warren would eventually help him choose the agency's chief.
Warren designed the advisory role during long conversations with White House officials, a person familiar with her thinking said. The person insisted on anonymity to discuss private conversations.
Warren has spent the past two years running the Congressional Oversight Panel, charged with monitoring the Treasury Department's handling of the $700 billion bank rescue fund known as the Troubled Asset Relief Program.