Secret CIA "black site" prisons around the world are also to be closed, although the time frame for this is unclear.
The rendition - or transfer - of terror suspects to these prisons was widely criticised after they came to light in the wake of the invasion of Iraq in 2003.
Mr Obama has also limited the methods investigators can use to question terrorism suspects.
Threats, coercion, physical abuse and waterboarding are now all banned.
Continuing a day focused on national security and diplomacy, Mr Obama said veteran politician and deal-maker George Mitchell would head to the Middle East as soon as possible, in an effort to pursue a two-state solution to the Israeli-Palestinian conflict.
George Mitchell: 'There is no such thing as a conflict that can't be ended'
Mr Mitchell is a former senator who under former president Bill Clinton chaired the talks that led to the Good Friday Agreement in Northern Ireland.
Long-serving diplomat Richard Holbrooke was appointed US envoy to Pakistan and Afghanistan and charged with leading "our effort to forge and implement a sustainable approach to this critical region", Mr Obama said.
The announcements were made at by Secretary of State Hillary Clinton, flanked by Mr Obama and his Vice-President Joe Biden.
Mrs Clinton had earlier arrived at the state department for her first day on the job, where she was welcomed by applause and cheers from staff members.
She said it was a new era for America.
"President Obama set the tone with his inaugural address, and the work of the Obama-Biden administration is committed to advancing America's national security, furthering America's interests, and respecting and exemplifying America's values around the world."
Earlier on Thursday, the Senate Finance Committee approved the nomination of Timothy Geithner as Treasury Secretary, despite questions over his late payment of taxes earlier this decade.
The full Senate next votes on Mr Obama's choice to be the point man in steering America through its sharpest economic downturn in decades.
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