Haaland is a first-term Democrat from New Mexico in the US Congress and a member of the Laguna Pueblo people. If confirmed by the Senate, she would become the first Native American to lead a cabinet-level department.
The choice fits with Biden's much-publicized pledge to form the most diverse White House cabinet in history.
The Interior Department is a vast agency of more than 70,000 employees overseeing the country's natural resources, including national parks, and oil and gas drilling sites, as well as tribal lands -- home to 578 federally recognized tribes.
In Congress, the 60-year-old Haaland has prioritized the improvement of services to tribal communities, especially assistance during the coronavirus pandemic, which has disproportionately hurt Native American families.
"It would be an honor to move the Biden-Harris climate agenda forward, help repair the government-to-government relationship with tribes that the Trump Administration has ruined, and serve as the first Native American cabinet secretary in our nation's history," Haaland said in a statement published by The New York Times.
Biden also has reportedly tapped Michael Regan, a top North Carolina environmental regulator who brokered the nation's largest coal ash cleanup, to be administrator of the Environmental Protection Agency.
Regan, who is Black, served at the EPA in the Clinton and Bush administrations. He would be tasked with helping to carry out Biden's ambitious climate plans, which call for embracing clean energy and crafting higher fuel-efficiency standards for the country's automobiles and trucks.
Biden's transition team did not publicly confirm either pick.
But several of Haaland's congressional colleagues offered congratulations on what would be a historic nomination.
Biden's pick is nevertheless seen as a tough political call because he would be removing a Democrat from the House of Representatives at a time when the party's majority there is hanging by a thread.
But a public campaign supporting Haaland's nomination gained steam, and dozens of tribal leaders called on Biden to choose her.
'Real change'
The nomination marked "a historic and unprecedented day for all Indigenous people," said Navajo Nation President Jonathan Nez.
Haaland's pick "sends a clear message" that Biden "is committed to addressing the wrongs of the past and clearing a path for real change and opportunity for tribal nations."
Haaland won re-election easily in November, and while the seat has been in Democratic hands since 2009, it is unclear whether another Democrat would win it.
During Donald Trump's presidency, the department earned scorn from Native American groups. His administration expedited projects like the controversial Dakota Access pipeline, which has been vehemently opposed by Native American groups including the Standing Rock Sioux.
Haaland jabbed Trump on Thursday before news broke of her likely nomination.
"Trump failed Indian Country & only broke more promises," she tweeted.
"It was exacerbated by the Administration's failure to take this #pandemic seriously. Looking forward to turning the page on this dark chapter."
Biden has now picked most of his cabinet, including Antony Blinken for secretary of state, and Janet Yellen to head the Treasury.
The most senior post that remains open is that of US attorney general.
