Daley is "an experienced public servant, devoted patriot, my friend, fellow Chicagoan," Obama told a roomful of staff members and supporters at the White House. "Few Americans can boast the breadth of experience that Bill brings to this job."
Obama's choice of Daley to replace outgoing chief of staff Rahm Emanuel is the first in a handful of senior White House staff changes since the start the new year, reflecting the new political realities in Washington and early preparations for a re-election battle in 2012.
The shake-up effectively retools the public face of the administration, with three of the most highly visible members of Obama's closest inner circle -- Rahm Emanuel, Robert Gibbs and David Axelrod -- all departing as Obama heads into the second half of his first term.
Emanuel left as chief of staff in October to run for mayor of Chicago. Gibbs announced Wednesday he would step down as press secretary to become a private sector adviser. And senior aide Axelrod is likely to soon follow suit.
The list of replacements and possible replacements is dominated by experienced Washington insiders, many with track records of bipartisan deal-making. Whoever Obama picks will help set the tone for negotiations with lawmakers on Capitol Hill and chart a course for advancing the administration's agenda.
With many of the open posts expected to be filled within days, here's a look at the senior staff members who are on the way out -- and some of their likely replacements:
Emanuel, a former congressman from Illinois, had been unabashed about his desire to run for mayor of the Windy City. So when longtime Mayor Richard Daley announced in September that he would not seek another term, the door opened for Emanuel's return to his hometown.
A recent Chicago Tribune poll shows Emanuel the early front-runner in the race.
"I think he would be an excellent mayor," Obama said of his former chief of staff in an interview late last year.
William Daley, Former Commerce Secretary
Daley, the former Clinton commerce secretary and JP Morgan Chase executive, assumes the reins from interim chief of staff Pete Rouse, who will be promoted to counselor to the president.
"He possesses a deep understanding of how jobs are created and how to grow our economy," Obama said of Daley. "And needless to say, Bill also adds a smidgen of awareness of how our system of government and politics works. You might say it is a genetic trait."
Daley, who has strong ties within the business community, was considered a top choice for working with Republicans and signals the president's willingness to move to the center.
The U.S. Chamber of Commerce praised Obama's selection of Daley, calling it a "strong appointment."
But some liberal groups suggested bringing in Daley was akin to letting a wolf into a hen house.
Justin Ruben, executive director of MoveOn.org, said the move "sends the wrong message to the American people...Its up to Daley to prove that he's not carrying water in the White House for the big banks that took our economy over the cliff."
The seventh and youngest child of the late Chicago Mayor Richard J. Daley, he may be best known for not conceding on election night when he was the campaign chairman for Al Gore's 2000 presidential campaign.