If confirmed as expected by the U.S. Senate, Yellen would be the first woman to lead the Fed in its 100 year history.
Flanked at the White House by Yellen and outgoing Fed Chairman Ben Bernanke, who steps down at the end of his second four-year term in January, Obama stressed the Fed has a "dual mandate -- sound monetary policy, and increasing employment and creating jobs."
Obama said tapping Yellen as Fed chairwoman is "one of the most important economic decisions I'll make as president," noting her term would last beyond his presidency.
"She's a proven leader and she's tough, and not just because she's from Brooklyn. ... Janet is renowned for her judgment," sounding an early warning about the housing bubble and the recession, Obama said.
Noting she is married to George Akerlof, a Nobel prize-winning economist and professor emeritus at the University of California, Berkeley, and her son Robert Akerlof is an assistant professor at the University of Warwick, Obama said, "You can imagine the conversation around the dinner table is different than ours."
Without mentioning the budget and debt ceiling impasses in Washington, Obama said Yellen would defend the economy against "the reckless few."
The president said during the past five years, "America has fought its way back from the nation's worst recession" with 7.5 million new jobs, an improving housing market and an "auto industry that has come roaring back. We shouldn't do anything to threaten that progress."
He also extensively thanked Bernanke, saying, "One of the most critical contributors to this process has been the Federal Reserve," with Bernanke showing "a voice of wisdom and a steady hand ... when faced with the prospect of a global meltdown."
Bernanke did not speak, but Yellen thanked Obama for his trust.
She said was "honored and humbled by the faith you've placed in me," and if confirmed "I promise to do my utmost to keep that trust."
"The past six years have been tumultuous for the economy," Yellen said. "I think we all agree more needs to be done to strengthen the economy," particularly for those most affected by the downturn.
Yellen is a longtime Fed official who would likely maintain current policies, observers said.
"Markets will be comfortable with a familiar face," JPMorgan Chase & Co. Chief U.S. Economist Michael Feroli told The Washington Post.
Yellen, 67, is the Fed's second-in-command since 2010 and a close adviser to Bernanke.
Yellen -- who a former colleague told The New York Times is "a small lady with a large IQ" -- must be approved for the four-year Fed chief term by the Senate amid squabbling between Democrats and Republicans over fiscal issues.
Sen. Chuck Schumer, D-N.Y., said: "I think she has a very good chance of being confirmed. I think she will have bipartisan support."
But some Republicans expressed concerns about whether Yellen was sufficiently committed to the Fed's goal of keeping inflation in check.
"I voted against Vice Chairman Yellen's original nomination to the Fed in 2010 because of her dovish views on monetary policy," said Sen. Bob Corker, R-Tenn., who sits on the Banking Committee, which must approve the nomination before it can go to the full Senate for a final vote.
"We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed," Corker said.
A dove usually means someone who is more concerned with unemployment than with inflation.
Obama's first choice for the job, former Treasury Secretary Lawrence Summers, dropped out of the running Sept. 15 following opposition from Democrats.
Yellen, who as an academic focused on the labor market, is an architect of the Fed's aggressive $85 billion-a-month bond-buying program intended to stimulate the economy and bring down unemployment.
The central bank has been preparing investors since April for its plans to wean the financial system off the easy money.
As chairwoman, she would lead a committee of 19 policymakers who are divided over whether the bond-buying program is doing much good and worry the Fed's $3.5 trillion portfolio of treasury and mortgage securities is getting dangerously large, The Wall Street Journal said.
The Fed has also sought to boost the economy by holding short-term interest rates near zero percent. It has promised to keep them there until the 7.3 percent jobless rate falls to 6.5 percent or lower.
Before serving as Fed vice chairwoman, Yellen was president of the Federal Reserve Bank of San Francisco and chairwoman of the Council of Economic Advisers. She was also a longtime professor at the University of California, Berkeley, Haas School of Business. Before that she lectured at the London School of Economics and was an economics assistant professor at Harvard University.
Yellen graduated summa cum laude from Brown University with a degree in economics and received a doctorate in economics from Yale University.