The announcement came a day after Obama secured enough delegates to clinch the Democratic nomination and as the party coalesced behind the Illinois senator to take the fight to Republican John McCain in November's election.
Clinton had refused to concede on Tuesday, saying she would deliberate in the coming days, but the brief message from her team had an air of finality about her doomed bid to become the first female president.
"Senator Clinton will be hosting an event in Washington ... to thank her supporters and express her support for Senator Obama and party unity," the New York senator's campaign said in a statement.
Obama responded to the news in a brief remark to a pool reporter, saying: "Truth is, I haven't had time to think about it. This weekend, I'm going home, talk it over with Michele and we're going on a date."
US media earlier reported Clinton would bow out Friday at the urging of Democratic members of Congress, but her campaign said she would hold an event on Saturday instead to allow more of her supporters to attend.
Clinton visited her campaign headquarters in Arlington, in Washington's Virginia suburbs, on Wednesday to inform most of the staff that they would no longer be required after Friday, ABC News said.
Junior staffers were said to be emotional and some were crying at the final confirmation that their 16 months of hard graft had come to naught.
Clinton would be bowing to the reality that after the final primaries were held in Montana and South Dakota on Tuesday, Obama is the Democratic Party's heir apparent for November's election against McCain.
However, in refusing to concede immediately, she kept her options open, and Clinton surrogates spent Wednesday talking up her credentials to be Obama's nominee for vice-president.
Clinton sung her rival's praises to a powerful pro-Israel lobby earlier in the day, her clearest admission yet that the race was over.
"Let me be very clear, I know that Senator Obama will be a good friend to Israel," she said, seeking to shed his perceived weaknesses among Jewish voters.
Obama also heaped praise on his rival for making "history" on the campaign trail, as the two addressed the American Israel Public Affairs Council (AIPAC) within minutes of each other.
Obama told reporters after a visit to the US Senate that he had talked with Clinton in the early hours of Wednesday.
"We are going to be having a conversation with the coming weeks," he said, adding he was confident the party would be unified by the November elections.
On November 4, voters must pick between Obama, 46, a freshman senator and charismatic mixed-race champion of a new political generation, and McCain, 71, a Vietnam war hero asking for one final call to service.
Obama plunged straight into the five-month election battle Wednesday, crossing swords with McCain over Middle East policy.
Laying out the contours of his presidential program, Obama insisted Jerusalem must remain the undivided capital of Israel, and said he would work to "eliminate" the threat posed by Iran.
"His appearance was very impressive. His words on Jerusalem were very moving," Israeli Prime Minister Ehud Olmert told reporters after meeting President George W. Bush in the White House.
But less than two hours later, McCain's campaign was on the attack, denouncing Obama for presenting a "rather odd, alternative reality."
"Senator Obama really presents kind of a false choice today, that the only diplomacy that can work is with Iranian leaders," McCain's senior foreign policy adviser Randy Scheunemann told reporters.
Meanwhile, Obama's campaign announced that Caroline Kennedy, daughter of assassinated president John F. Kennedy, had been selected as part of a three-member team searching for a vice presidential pick.
Obama spokesman Bill Burton said in a statement that the team would also include former deputy attorney general Eric Holder and James Johnson, a senior Democratic Party insider.
Clinton's campaign chairman, Terry McAuliffe, told MSNBC television that an Obama-Clinton ticket would be "unstoppable." He added: "I think we would have the White House for 16 years."