"All the strands of my life came together and I really became a man when I moved to Chicago," Mr Obama said.
Mr Obama worked there as a community organizer and also represented the area as an state senator.
The plan for the $600 million project beat out a rival proposal from Hawaii, the president's birthplace.
The library will store his papers and help frame his legacy as president.
Long the centre of Chicago's black community, the South Side has struggled with poverty and high crime rates.
The president's foundation wants the library to give the South Side an economic boost. The University of Chicago will be a major contributor to the Centre, which will be entirely funded by the Obama Foundation.
Nearby the future library is the University of Chicago, the Illinois Institute of Technology and multiple museums.
"Not only will we be able to encourage and affect change locally, but what we can also do is to attract the world to Chicago," said Mr Obama in a video released on Tuesday.
The video accompanying the announcement profiled residents of the South Side who are working to build the community up.
One University of Chicago study from 2014 found that the annual economic impact of the Centre could be $220 million per year, mostly due to an influx of new visitors to the city.
First lady Michelle Obama was raised in the South Side and the couple first met in the neighbourhood.
"I'm thrilled to be able to put this resource in the heart of the neighbourhood that means the world to me," Mrs Obama said in the video. "Every value, every memory, every important relationship to me exists in Chicago. I consider myself a South Sider."
President Obama's foundation has announced his presidential library will be built in Chicago in the city's struggling South Side neighbourhood.