A former state insurance commissioner, Sebelius has been praised for trying to reach across the political divide as a Democratic governor in a conservative Republican state.
Obama also named Nancy-Ann DeParle, a health official in the US administration of Bill Clinton, to serve as head of the newly-created White House Office for Health Reform, the White House said.
The moves come as part of a renewed focus by the Obama administration on healthcare.
On Thursday the White House will host a healthcare summit to be attended by health insurers, members of the US congress and lobbyists.
The US president has pledged to expand healthcare to 46 million uninsured Americans, to ease the burdens of insurance costs to employers and reform the operations of the healthcare system.
Obama unveiled his first budget last week highlighted a $634bn "reserve fund" to pay for 10 years of healthcare reforms including new computer-based initiatives to a programme to send nurses to the homes of new mothers.
The White House has also authorised the release of $155m of funds as part of the economic stimulus plan to support 126 new health centres.