"When it comes to school reform, Arne is the most hands-on of hands-on practitioners," Obama said, making the announcement at a school that he said has made remarkable progress under Duncan's leadership.
"He's not beholden to any one ideology, and he's worked tirelessly to improve teacher quality," Obama said.
Duncan stood nearby, the latest member to be named to the Cabinet of the president-elect. His appointment is subject to Senate confirmation.
Duncan said, "No issue is more pressing than education. ... It is the civil rights issue of this generation."
Obama combined his announcement with a brief news conference in which he refused to say whether he supports the idea of a special election to fill the Senate seat he recently vacated.
Illinois Gov. Rod Blagojevich has the power to make the appointment, but he was arrested last week and charged with, in effect, trying to enrich himself by appointing a new senator who could help him financially or politically.
Some Democrats have called for a special election, while others prefer to wait for Blagojevich to resign, a step that would allow Lt. Gov. Pat Quinn to appoint a new senator. The second alternative would ensure the seat remains in Democratic hands, and on a faster timetable than a special election would allow.
Obama cut off a reporter who sought to ask a question about Rep. Rahm Emanuel, the incoming White House chief of staff, who was reportedly heard on a federal wiretap talking with an aide to Blagojevich about potential Senate replacements. Neither Obama nor Emanuel has been accused of any wrongdoing, and the president-elect has said he will make the results of an internal investigation into the matter public soon.
The appointment of Duncan left a handful of Cabinet appointments yet to be made public, and Obama hinted broadly a Republican would be among them.
Asking about his campaign promise to name Republicans, a reporter pointed out that so far Defense Secretary Robert Gates is the only one. Obama noted there were several spots left to fill.
On the economy, the president-elect said the Federal Reserve was "running out of ammunition" in terms of lowering interest rates to combat the recession. He said it was "absolutely critical" that his economic recovery program be put into place to deal with what he called the toughest time economically since the Great Depression.
The Fed was expected to announce the latest in a series of rate cuts later in the day.