If confirmed, Carter would replace Chuck Hagel who announced his resignation last month. Carter served as deputy defense secretary under Leon Panetta from October 2011 to December 2013.
Obama will make the announcement later on Friday, joined by both Carter and Hagel, a White House official said on condition of anonymity.
Carter, 60, has gained a reputation as an expert on hi-tech weapons and military budgets, portraying himself as a reformer intent on making the vast Pentagon bureaucracy more efficient.
But he has less experience overseeing war strategy and has never served in uniform, unlike Hagel, who was wounded in the Vietnam War.
Officials privately said Hagel was forced out after losing the confidence of the White House, as the United States wages an air war against Islamic State jihadists in Iraq and Syria.
Carter will inherit a tense relationship between the US military and the White House that is unlikely to ease even with a fresh face at the helm of the Pentagon, experts said.
Carter, a policy wonk with degrees in medieval history and theoretical physics, is a bona fide defense expert. But he is also a blunt-talking figure who could collide with what his predecessors have called the White House's tendency for "micro-management."
With years of experience in senior Pentagon posts, "it's hard to imagine someone better prepared for this job," said Stephen Biddle, a professor at George Washington University who got to know Carter at Harvard.
"He's widely respected among Pentagon civilians and the uniformed military. He's a capable, experienced manager. He's breathtakingly smart," Biddle told AFP.
But "there are big uncertainties with respect to Carter's ability to shape US defense policy under an administration this centralized."
Carter will be expected to manage the US-led air war against the Islamic State group in Iraq and Syria, but he will face White House aides who critics say have been unwilling to relinquish control on big strategic questions.
Two former defense secretaries, Robert Gates and Panetta, both complained bitterly in recently published memoirs that Obama's White House distrusts the military and often tries to shut out the Pentagon from decision making.
Both men accused the White House of taking decisions on troop numbers and strategy in Iraq and Afghanistan based more on political calculations than national security interests.
Hagel also became frustrated with meddling from the White House, officials and lawmakers said.
"There's always some level of tension in civilian-military relations, but it's been higher in this administration, there's no question about it," Biddle said.
The acrimony peaked during Obama's first term as he weighed advice on the war in Afghanistan. After a protracted internal debate marked by incessant leaks, Obama opted to send more troops as the military requested. But he also set a timeline for a rapid drawdown that is still a source of resentment for many commanders.
The White House on Thursday sought to play down the tension with the Pentagon during Obama's tenure, saying such friction is "not unique to this administration."
Carter is known for forcefully arguing his case and coming to his own conclusions, and in recent years his views have not always meshed perfectly with the Obama administration.
On Iraq for example, Carter favored keeping US troops in the country instead of withdrawing forces in 2011, and he has repeatedly warned of the dangers of scaling back defense spending.
"I'm sure he'll want to be an architect and not just a carpenter," Biddle said. "Whether he and the White House staff can co-exist is unclear to me."
Carter's background in academia, industry and Pentagon management resembles another former defense secretary who also has served as his mentor: William Perry, who was defense secretary during Bill Clinton's presidency in the 1990s.
Perry has praised him as "superbly qualified." But unlike Perry, Carter has a more assertive personality and some of his critics say he has an impatient side that can alienate some staff members.
Perry has described Carter as "hard-charging." If confirmed, Carter will arrive with an intimate knowledge of the Pentagon bureaucracy but he has never managed a war and has less experience with the volatile politics of the Middle East.
"By background, he is strongest on technology, nuclear and strategic issues, management, and acquisition policy. He is, as best I know, slightly less well prepared — though hardly a novice — on matters of the Middle East," Michael O'Hanlon from the Brookings Institution said.
Until now, Carter has worked mostly out of the spotlight. "I think he's been called... the most-important least-known figure in Washington, or some language to that effect — and I agree with that," General Martin Dempsey, chairman of the joint chiefs of staff, said at a ceremony for Carter last year.
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