Muller, "with the concentration of poetry and the frankness of prose, depicts the landscape of the dispossessed," the Swedish Academy said Wednesday when announcing the award.
Muller grew up in a German-speaking town in Romania, the daughter of parents who were a German-speaking minority in the country.
She studied German and Romanian literature at the university in Timisoara, Romania, where she associated with Aktionsgruppe Banat, a group of German-speaking authors opposed to Nicolae Ceausescu's dictatorship, the Nobel Foundation said in a release.
Muller debuted in 1982 with a collection of short stories, "Niederungen," which was immediately censored in Romania. An uncensored version was published in Germany while "Druckender Tango" was released in Romania, the foundation said. In these two works, Muller wrote of life in a small, German-speaking village and the corruption, intolerance and repression found there.
Because Muller publicly criticized the Ceausescu's repressive regime in Romania, she was barred from publishing in her own country.
In 1987, she emigrated to Germany with her husband, author Richard Wagner. She lives in Berlin.
Muller has been a guest lecturer on the worldwide university circuit. Since 1995, she has been a member of Deutsche Akademie fur Sprache und Dichtung (the German Academy for Language and Poetry) in Darmstadt.