It's unclear when Trump will make the formal announcement.
"Based upon his outstanding service to the Country and his demonstrated ability to lead, President Trump intends to nominate Patrick M. Shanahan to be the Secretary of Defense," Sanders said.
"Acting Secretary Shanahan has proven over the last several months that he is beyond qualified to lead the Department of Defense, and he will continue to do an excellent job."
After the announcement, Shanahan told reporters outside of the Pentagon that he was "very excited" by the news.
"I called my mom," he said. "She was super happy."
Asked what his priorities will be going forward, he said the national defence strategy will be "high priority," but there are "real world events that happen every day, and so you have to spin a lot of plates."
He said the biggest challenge of the position was "balancing" all the various issues plus those that occur and were unplanned for.
Shanahan worked as an executive for Boeing for decades prior to joining the Trump administration and oversaw the audit as well as its development of a new missile defense policy.