Daley comes from a politically powerful family in Chicago and is currently a banking executive for JP Morgan Chase. He served as commerce secretary under former President Bill Clinton.
"I know Bill to be somebody who cares deeply about this country," the president said.
He will be replacing Pete Rouse, the interim chief of staff of the last three months since Rahm Emanuel stepped down to run for mayor of Chicago. Rouse reportedly did not want the position permanently and recommended Daley for it.
Daley offers criteria Obama wants for the new environment in Washington: an outsider's perspective, credibility with the business community, familiarity with the ways of the Cabinet and experience in navigating divided government.
Daley made a pledge to the president: "This team will not let you down - nor the nation."
The Associated Press contributed to this story.