"Mike has shown a deep commitment to the cause of justice and an unwavering determination to protect the American people," Mr. Bush said. "Mike has also been a key leader in the war on terror."
Chertoff headed the Justice Department's criminal division from 2001 to 2003, where he played a central role in the nation's legal response to the Sept. 11 attacks, before the president named him to an appeals court position in New Jersey.
Chertoff would replace Tom Ridge, the department's first chief. "He leaves some very deep shoes to fill," Chertoff said of Ridge.
"I will be proud to stand again with the men and women who form our front line against terror," he said.
By selecting Chertoff, Mr. Bush is looking to avoid a repeat of the administration's embarrassment when problems cropped up inlast month, reports CBS News White House Correspondent Mark Knoller.
Kerik withdrew his name from consideration for the Homeland Security post, citing immigration problems with a family housekeeper. An avalanche of bad publicity soon followed for the former New York City police commissioner, including reports of questionable business dealings and extramarital affairs.
Mr. Bush said that Chertoff has "been confirmed by the Senate three times," signaling that he should have no problem surmounting the advise and consent process.
Chertoff, whose resume includes stints as a federal prosecutor in New Jersey and the Senate Republicans' chief counsel for the Clinton-era Whitewater investigation, has been one of the administration's key figures in the war on terror.
He took the lead in 2003 in successfully arguing the government's case in a potentially precedent-setting appeal involving terrorism suspect Zacarias Moussaoui, the lone man charged as a conspirator in the Sept. 11 attacks and playing a significant role in development of the U.S. Patriot Act to combat terrorist attacks.
From 1990 to 1994, as U.S. Attorney in Newark, N.J., Chertoff oversaw high-profile prosecutions of Jersey City Mayor Gerald McCann, New York chief judge Sol Wachtler and the kidnappers and killers of Exxon executive Sidney Reso.
He also worked in Trenton as special counsel to the state Senate Judiciary Committee that investigated racial profiling in New Jersey. And much earlier in his career, working in the U.S. Attorney's office in New York - then led by Rudolph Guiliani - Chertoff was lead prosecutor in a trial which convicted the leaders of four organized crime families.
The choice of a new homeland security chief rounds out Mr. Bush's second-term Cabinet and completes a substantial makeover of the president's team as he awaits his Jan. 20 inauguration.
Donald Rumsfeld, John Snow and Norman Mineta have remained as secretaries of defense, treasury and transportation, but Bush has changed most other key agency positions.
He turned to close associates Margaret Spellings and Alberto Gonzales for the positions of secretary of education and attorney general and chose his first-term national security adviser, Condoleezza Rice, to be secretary of state.
Congress has started the process of confirmation hearings, andbefore the Senate Judiciary Committee, where Democrats quizzed him aggressively about his role in the writing of an administration policy paper interpreting what kinds of interrogations of enemy combatants could be permitted under a 1994 law banning torture.
Rice has her initial confirmation hearing on Jan. 18.