He will be replaced by Jack Lew, who now leads the Office of Management and Budget.
Daley submitted his letter of resignation to Obama last week, saying he was honored to be part of the administration but that it was time for him to return to "the hometown we both love" to spend time with his family, Obama said when announcing Daley's departure.
Various media reported Daley will leave at the end of January.
Daley, who had a stormy term with the White House and reportedly clashed with other officials, was named chief of staff a little more than a year ago to replace Rahm Emanuel, who resigned to wage a successful election bid to be Chicago mayor.
Obama called Daley an "outstanding" chief of staff who did "extraordinary work" during an "extraordinary year. He was "intimately involved" in discussions on Osama bin Laden, decisions on ending the war in Iraq, Libya, the American Jobs Act, reaching agreement to reduce the deficit by $2 billion, and free-trade agreements with Colombia, Panama and South Korea."
Lew, Obama said, has provided economic advice that was "invaluable" and has "my complete trust." The president didn't say who will succeed Lew at the OMB.
"There is no question I will deeply miss having Bill by my side here at the White House. … I plan to continue to seek Bill's advice and counsel in months and years to come," Obama said, adding. "I have every confidence in Jack to believe we won't miss a beat."