The president made the announcement in a Rose Garden ceremony on Monday morning.
If approved by the Senate, General Martin Dempsey will succeed Admiral Mike Mullen in the position.
The transition moves the president closer to rebuilding his national security team heading into the 2012 presidential race.
The president had turned to CIA Director Leon Panetta to succeed Robert Gates and secretary of defense and chose to move Army Gen. David Petraeus from his command of the Afghanistan war effort to the United States to replace Panetta at the CIA.
Marine Gen. James Cartwright had long been rumored to be Obama's favorite, and the president singled him out for praise at the announcement. But he turned instead to Dempsey, an accomplished veteran of the Iraq war, to succeed Adm. Mike Mullen as his top military adviser, calling the Army officer "one of our nation's most respected and combat-tested generals."
The Associated Press contributed to this story.