"I am fully confident that I could serve our country ably and effectively in that role," Rice wrote in a letter to President Obama today. "However, if nominated, I am now convinced that the confirmation process would be lengthy, disruptive and costly - to you and to our most pressing national and international priorities."
"That trade-off is simply not worth it to our country," she added.
Rice has been criticized by Republicans for her response to questions on the Sunday talk shows shortly after the terrorist attack on the U.S. consulate in Benghazi killed four Americans.
"The position of secretary of state should never be politicized," Rice wrote. "As someone who grew up in an era of comparative bipartisanship and as a sitting U.S. national security official who has served in two U.S. administrations, I am saddened that we have reached this point, even before you have decided whom to nominate. We cannot afford such an irresponsible distraction from the most pressing issues facing the American people."
Sources told ABC News that even before Rice withdrew her name from consideration to be secretary of state earlier today, Sen. John Kerry, D-Mass., had emerged as the leading contender, with the president convinced he would be the better secretary of state.
The president is all but certain to nominate Kerry, sources said, though no official decision has been made.
The position of secretary of defense is not as far along in the process, but sources said former Sen. Chuck Hagel, R-Neb., seemed to have an edge over other possible candidates such as former Undersecretary of Defense for Policy Michelle Flournoy and Deputy Secretary of Defense Ashton Carter.
The CIA director slot, sources said, will go to either acting director Michael Morrell or White House counterterrorism adviser John Brennan.
President Obama, who publicly defended Rice on several occasions, has accepted her decision to remove her name from the running.
"I have every confidence that Susan has limitless capability to serve our country now and in the years to come, and know that I will continue to rely on her as an advisor and friend," Obama said in a written statement.
"While I deeply regret the unfair and misleading attacks on Susan Rice in recent weeks, her decision demonstrates the strength of her character, and an admirable commitment to rise above the politics of the moment to put our national interests first," he said. "The American people can be proud to have a public servant of her caliber and character representing our country."
Two Republican members of Congress who had adamantly opposed Rice's potential nomination both reacted quickly.
Sen. Lindsey Graham, R-S.C., tweeted, "I respect Ambassador Rice's decision."
A spokesperson for Sen. John McCain, R-Ariz., wrote, "Senator McCain thanks Ambassador Rice for her service to the country and wishes her well. He will continue to seek all the facts surrounding the attack on our consulate in Benghazi that killed four brave Americans."
The current secretary of state, Hillary Clinton, released a statement filled with praise for Rice, saying she "has been an indispensable partner over the past four years. We worked closely together to secure tough new sanctions on Iran and North Korea, build an international coalition in Libya, and support the independence of South Sudan. From the National Security Council to the State Department to the United Nations, Susan has worked tirelessly to advance our nation's interests and values. I am confident that she will continue to represent the United States with strength and skill."
-Jake Tapper and Mary Bruce