Mr Obama said that his nominee already had the respect and trust of leaders around the world.
Mr Kerry will replace Hillary Clinton, who had previously said she planned to leave the post. Mr Obama said Mr Kerry would continue the work that Mrs Clinton had done to restore US influence globally.
Mr Kerry "is not going to need a lot of on-the-job training", Mr Obama said in making the announcement at the White House.
His fellow Democrat's knowledge of US policy and relationships with foreign leaders "makes him a perfect choice", Mr Obama said.
The nomination of Mr Kerry (69), who is chairman of the Senate Foreign Relations Committee, is subject to Senate confirmation and will prompt a re-shuffle of Mr Obama's top national security and foreign policy advisers.
He is a longtime ally of Mr Obama. At the 2004 Democratic convention where Mr Kerry became the party's presidential nominee, Mr Obama was selected to deliver the keynote address.
An Illinois state senator at the time, Mr Obama gained national attention with his speech.
Mr Kerry, a combat-decorated Vietnam War veteran who first became known nationally as a critic of that war, would win quick confirmation from his fellow senators, said Martin Indyk, former US Ambassador to Israel and director for foreign policy at the Brookings Institution in Washington.
The nomination hearings will be conducted by the committee that he's led for the past four years and "after so many years of service in the Senate, he is a popular figure on both sides of the aisle", Mr Indyk said. Mr Kerry has been in the Senate for almost 28 years.
Mrs Clinton, who is recuperating from a concussion she sustained after fainting, wasn't at the announcement.
Mr Obama said she "could not be more excited" about the choice of Mr Kerry.