A White House official confirmed the personnel changes Wednesday morning ahead of a planned announcement by the president later in the day.
Donilon has been a key foreign policy adviser to Obama since he first took office. But the 58-year-old had been expected to depart sometime this year, with Rice seen as the likely candidate to replace him.
Rice, a close Obama confidante, came under withering criticism from Republicans as part of the investigations into the deadly attack on a U.S. compound in Benghazi, Libya. Rice, relying on talking points from the intelligence community, said in television interviews that the attacks were likely spontaneous, which was later proven incorrect.
Obama considered nominating Rice as his second-term secretary of state, but she withdrew amid the GOP criticism, saying she didn't want her confirmation fight to be a distraction for the White House. The president instead nominated John Kerry, who easily won confirmation from his former Senate colleagues.
Rice's new post as national security adviser does not require Senate confirmation.
Obama will also name Samantha Power, a human rights expert and former White House adviser, to replace Rice as the U.S. ambassador to the United Nations. Power left the White House earlier this year, though she was considered the president's likely pick to move to the U.N. should Rice be promoted to the White House.
The White House official said Donilon is expected to stay on the job until early July, after Obama wraps up overseas trips to Europe and Africa, as well as an unusual summit in California later this week with Chinese President Xi Jinping.
The official insisted on anonymity in order to discuss the personnel changes before they were publicly announced.
Donilon has overseen a foreign policy agenda at the White House that put increased emphasis on the U.S. relationship with Asia. He's also played a key role in the administration's counterterrorism strategy, including the raid that led to the death of Osama bin Laden, and in managing the complex U.S. ties with Russia.
Rice, who first started working for Obama during his 2008 presidential campaign, has a close relationship with the president and many of his advisers. She's known for being outspoken on human rights issues and also pushed for a more interventionist strategy in Libya.