Daley will step into one of the most important and influential jobs in American government as an adviser and gatekeeper to Obama. He will replace Pete Rouse, the interim chief of the last three months, a behind-the-scenes Obama adviser who did not want the position permanently and recommended Daley for it.
Rouse will remain as a counselor to the president, an elevated position from his former job as senior adviser.
Two senior administration officials confirmed Obama's decision to The Associated Press, speaking on condition of anonymity because it has not been announced.
Obama is expected to introduce Daley on Thursday afternoon at the White House.
Although Daley carries the name of a dynastic family of politics in Chicago, which is Obama's hometown, he and the president haven't been personally close. He offers criteria Obama wants: an outsider's perspective, credibility with the business community and experience in navigating divided government.
Daley also wants the job. At 62, the move will thrust him into the heart of national politics just as Obama adapts to a new reality in Washington, with Republicans controlling the House, working to gut his signature health care law and pushing for major cuts in spending. Obama informed his senior advisers of the change in a meeting on Thursday morning. He made clear that no one is more valuable to him than Rouse, according to one of the officials in the room. The set-up means Obama gets both officials: Daley to run the grueling operation, Rouse to offer a range of advice.
The move comes as Obama ushers in change across his senior leadership -- the result of internal staff fatigue, a need to shift energy and people to Obama's re-election campaign, and an adaptation to the fresh limits on Obama's power.
Considered the most consuming job in the White House, the chief of staff shapes nearly everything that Obama deals with -- how the president spends his time, how he pursues his strategies on foreign and domestic policy, how he deals with a politically deadlocked Congress and a skeptical electorate.
Rouse has been leading a review of how to restructure the White House since even before Rahm Emanuel quit the chief of staff's job in October to run for Chicago mayor.
Now the changes are coming quickly.
White House press secretary Robert Gibbs announced Wednesday he was resigning by early February, senior adviser David Axelrod will be leaving soon, and both of Obama's deputy chiefs of staff, Jim Messina and Mona Sutphen, are exiting soon, too. David Plouffe, a key member of Obama's inner circle as his former presidential campaign manager, will be joining the senior staff of the White House on Monday.
Daley emerged as a natural candidate, particularly after other internal candidates ended up in other positions. He is close to some of those in Obama's orbit, including Axelrod, Emanuel and senior presidential adviser Valerie Jarrett.