Hughes, pending confirmation by the Senate, would become undersecretary of state for public diplomacy with the rank of ambassador.
"I'm eager to listen and to learn," Hughes said, with Rice standing at her side.
From the White House, President Bush said "spreading the universal principle of human liberty" is key to changing the conditions that spawn terrorism and thus a crucial part of the nation's long-term security strategy.
"This will require an aggressive effort to share and communicate America's fundamental values while respecting the cultures and traditions of other nations," Mr. Bush said in a statement. "Karen Hughes has been one of my most trusted and closest advisers and she has the experience, expertise and judgment to lead this critical effort."
Choosing one of his most-trusted aides "signifies my personal commitment to the international diplomacy that is needed," Mr. Bush said.
Introducing Hughes at the State Department, Rice said the United States must do much more to counter the "hateful propaganda" that is so common in the Islamic world.
Rice said Hughes believes strongly that the United States "must mobilize young people around the world to shatter the mistrust of past grievances and to foster a new spirit of tolerance and mutual respect."
Also in attendance at the ceremony was Dina Powell, an Egyptian-born former White House aide who is slated to be a top aide to Hughes.
Hughes, a former Texas television reporter, has no major foreign policy experience but she has played a key role shaping the president's message on a number of issues, reports CBS News Correspondent Peter Maer.
A former counselor to the president, Hughes left the White House in 2002 to move her family back to Texas. She has continued to advise the president from her home in Austin.
Hughes and Powell will focus on Mr. Bush's plan to spread democracy in the Middle East, an effort that has gained momentum with recent elections in Iraq and the Palestinian territories.
The two nominees are the latest close Bush aides to follow Rice to the State Department. Rice was Mr. Bush's White House national security adviser during his first term. She succeeded Colin Powell as the top U.S. diplomat in January.