Schmidt's selection comes more than 10 months after Obama declared cyber security a priority and ordered a broad administration review.
The official said Obama was personally involved in the selection process and chose Schmidt after an extensive search because of his unique background and skills. Schmidt will have regular and direct access to the President for cybersecurity issues, the official said.
Obama released the findings of the cyber security review nearly seven months ago, vowing that the White House will name a cyber coordinator to deal with one of the "most serious economic and national security challenges we face as a nation."
Corporate computer security leaders have openly expressed frustration with the White House as movement on the job post stalled and questioned the administration's claims that the issue is a priority.
At the same time, cyber experts and potential job candidates have complained that the position - which will report to both the National Security Council and the National Economic Council - lacks the budgetary and policy making authority needed to be successful.
"From the industry's perspective, a lot of people are starting to think that other pressing matters in Afghanistan and other issues put this on a back burner," said Roger Thornton, chief technology officer for Fortify Software, and a cyber security expert. "If it is, that's understandable but depressing."
Schmidt's selection suggests that economic and business interests in the White House held more sway in the selection process. Schmidt, president and CEO of the Information Security Forum, a nonprofit international consortium that conducts research in information security, has served as chief security officer for Microsoft and as cyber security chief for online auction giant eBay. He was reportedly preferred by NEC director Lawrence Summers.
Thornton praised Schmidt's choice, saying the coordinator has to strong on many different dimensions.
He said Schmidt understands the technology, has broad management experience and also has worked well within the political arena, a key requirement for the White House post.
"I think he would be able to get people to compromise and move things forward," said Thornton.
U.S. government computer systems are constantly under assault, and are being attacked or scanned millions of times a day. Hackers and cyber criminals pose an expanding threat, using increasingly sophisticated technologies to steal money or information, while nation-states probe for weaknesses in order to steal classified documents or technology or destroy the networks that run vital services.
The nation's cyber security vulnerabilities have been underscored recent months, with a number of high profile assaults, including ones that breached a high-tech fighter jet program and the electrical grid, although no classified material was compromised.
Early last month, unknown hackers knocked a number of U.S and South Korean government Web sites off line in a widespread and unusually resilient computer attack.
Considered an expert in computer forensics, Schmidt's roughly 40-year career includes 31 years in local and federal government service, including a stint as vice chairman of President George W. Bush's Critical Infrastructure Protection Board. He also was for a short time an adviser to the FBI and worked at the National Drug Intelligence Center.
Congress members, business leaders and cyber security experts have called for a more coordinated effort by the federal government to monitor and protect U.S. systems and work with the private sector to insure that transportation systems, energy plants and other sensitive networks are equally protected.
Obama pledged that the new cyber coordinator will have "regular access" to the Oval Office. But critics worry that the coordinator will be mired in bureaucracy.
Rather than being a cyber czar, the person will be more of a "cyber peasant" said James Lewis, a cybersecurity expert and senior fellow at the Washington-based Center for Strategic and International Studies. "A lot depends on who the person is, but it's not a top tier position, not someone who reports directly to the president."
In a letter to Obama, TechAmerica - which represents about 1,500 companies - said the naming of a coordinator was urgently needed since " those that would seek to harm America by exploiting our digital infrastructure continue to increase their efforts."
With his administration struggling to pass a controversial health care overhaul, deal with a troubled and unpopular war in Afghanistan, and revive the stumbling economy, Obama has had little time to focus on what has become a cyber quagmire.