The president-elect said his nominees would serve as "guardians of the American landscape," and help invigorate the economy by fostering the creation of green jobs.
"I am confident that we have the team that we need to make the rural agenda America's agenda, to create millions of new green jobs, to free our nation from this dependence on oil and help preserve this planet for our children," Obama said.
Vilsack becomes the fourth former rival Obama has named to his administration. The others are Vice President-elect Joe Biden; Hillary Clinton, who was tapped to be secretary of state; and Bill Richardson, who was nominated to be head of the Commerce Department.
Vilsack announced his presidential candidacy in late 2006, positioning himself as a Washington outsider with heartland appeal, but he dropped out before the primaries because of an inability to raise money. He endorsed Clinton and campaigned actively for her in the long primary campaign against Obama. After Obama defeated Clinton, Vilsack endorsed him.
First elected governor in 1998, Vilsack, 58, carved out a reputation as a political centrist. He balanced Iowa's budget and resisted raising taxes, but he was willing to spend money on such priorities as education and health. He argued that pushing alternative energy sources was key to bolstering rural sections of the nation that are struggling economically and with vanishing populations.
Salazar will head a department that oversees oil and gas drilling on public lands and manages the nation's parks and wildlife refuges. Salazar is expected to try to balance the protection of natural resources while tapping the nation's energy potential -- an approach Obama has said he wants.
The Colorado senator opposed drilling in the Arctic National Wildlife Refuge and objected to the Bush administration's efforts to lease Western lands for oil shale development. It will be up to the Obama administration whether to go ahead with leasing.
Last week, the president-elect announced other key members of his environmental leadership. He selected Nobel Prize winner Steven Chu for energy secretary; Lisa Jackson for Environmental Protection Agency administrator; Carol Browner as his energy coordinator; and Nancy Sutley as head of the White House Council on Environmental Quality.
If Salazar is confirmed as interior secretary, Colorado Gov. Bill Ritter, a Democrat, will select a replacement to fill the last two years of his Senate term. Before being elected to the Senate in 2004, Salazar was Colorado's attorney general. He also headed Colorado's Natural Resources Department from 1990 through 1994.
Transition officials say more announcements are likely this week before Obama heads to Hawaii for Christmas vacation with his family.
The Associated Press contributed to this report.