Rice, who also served as the U.S. ambassador to the United Nations, was vetted to serve as Biden's vice president and was a contender to be secretary of State, a position that went to Antony Blinken.
The director of the Domestic Policy Council is not a Senate-confirmed position. The Biden team had been looking to find a high-profile role for Rice, but the top domestic policy job comes as a surprise given her expertise and experience in foreign policy.
"The roles they will take on are where the rubber meets the road — where competent and crisis-tested governance can make a meaningful difference in people's lives, enhancing the dignity, equity, security, and prosperity of the day-to-day lives of Americans," Biden said in the statement.
Rice also previously served as national security adviser during the Obama administration, and will now head up a unit charged with overseeing the implementation of Biden's agenda as it regards to domestic issues. The role does not require Senate confirmation.