Sebelius, 60, was insurance commission for eight years before serving as governor. This experience gave administration officials confidence Sebelius could handle the nitty-gritty details of health care in the tough battle ahead in pursuit of universal health care.
She was also an early Obama supporter and a finalist for the president's ticket before he picked Joe Biden for vice president. During the campaign, Sebelius spent 24 days stumping for Obama in 16 states.
FOX News' sources identified Sebelius as a contender for the post the day the former Senate Majority Leader Tom Daschle, the president's first HHS nominee, withdrew from consideration amid a tax scandal.
Sebelius had looked at running for the open U.S. Senate seat in Kansas in 2010, but she and the administration decided that race might be too difficult and her service at HHS could give her a more reliable role in national policy. She is legally barred from seeking a third term next year. A source said Obama will formally announce the nomination on Monday.
"Governor Sebelius brings extraordinary qualifications to this role: As a popular two-term governor known for her bipartisan approach, and as an insurance commissioner charged with standing up for better health care for her state, the governor has unique insight and experience to draw on as President Obama's partner in lowering health care costs and expanding coverage," a senior administration official told FOX News.
As HHS secretary, Sebelius will be among the top advocates for the president's universal health care plan -- a greater test of her policy and political skills than a protracted, expensive and possibly unsuccessful Senate campaign would have been, Democratic sources told FOX News.
A Democrat hasn't won a U.S. Senate seat in Kansas since 1934.
Sebelius comes from a strong political family. Her father, John Gilligan, was the governor of Ohio from 1971-75, making them the only father-daughter governors in American history.
Abortion foes strongly oppose Sebelius because she once had a reception attended by a late-term abortion provider who now faces criminal charges. Democrats say there was never any doubt that Obama would appoint an HHS secretary who supports abortion rights.
She will be subject to confirmation by the Democratic-controlled Senate.
The Associated Press contributed to this report.