Mulvaney, 49, was elected to Congress in 2010 in the wave that brought in a cohort of younger, staunchly conservative members into the House.
He has been an advocate for spending cuts, often taking on his own party to push for more aggressive curbs to government spending.
"We are going to do great things for the American people with Mick Mulvaney leading the Office of Management and Budget," Trump said in a statement. "Right now we are nearly $20 trillion in debt, but Mick is a very high-energy leader with deep convictions for how to responsibly manage our nation's finances and save our country from drowning in red ink.
"With Mick at the head of OMB, my administration is going to make smart choices about America's budget, bring new accountability to our federal government, and renew the American taxpayer's trust in how their money is spent," he added.
Trump has announced plans for increased defense spending in a massive infrastructure bill. Adding Mulvaney to his administration could help ease concerns from fiscal conservatives about the cost of such plans and their effect on the deficit.
A founding member of the House Freedom Caucus, which pushed House Speaker John A. Boehner out of power in 2015, Mulvaney is an advocate of a balanced-budget amendment to the Constitution.
Among Mulvaney's chief duties will be overseeing the most dramatic overhaul of the nation's tax code since President Ronald Reagan. Trump has pledged to streamline the process for individual households and slash the rate for corporations from 35 percent to 15 percent. The reforms are a central component of the administration's promise to boost economic growth to 4 percent -- or higher -- a message that resonated with voters still bruised by the Great Recession but that many economists believe is unsustainable.
In addition, Trump has argued stronger growth would mean his tax proposal would not contribute to the national debt, and he has vowed not to cut expensive but popular entitlement programs such as Medicare and Social Security. But experts have been skeptical of those claims, and Mulvaney would be responsible for reconciling the numbers.
One analysis by the Committee for a Responsible Federal Budget estimated Trump's tax plan would cost more than $5.3 trillion over the next decade. Even after factoring in faster economic growth, Trump's proposals are expected to add at least $2.6 trillion to the debt over the next decade, according to the nonpartisan Tax Foundation.
While Mulvaney hails from South Carolina, he's spent the last few years learning Spanish and has been one of just a handful of GOP lawmakers able to appear on Spanish-language television programs to explain and defend Republican policies.