A four-term U.S. House representative, Mulvaney just won reelection in November but will now vacate his seat to join Trump's administration.
"He's a tremendous talent, especially when it comes to numbers and budgets," Trump said in a statement Friday.
As director of the Office of Management and Budget, Mulvaney would be responsible for various fiscal matters in Trump's government -- including the president-elect's stated promise to repeal the Affordable Care Act, as well as other investments.
The South Carolina Republican has been a longtime supporter of Trump's and was an outspoken critic of the government spending during President Barack Obama's terms.
Mulvaney, 49, is the second prominent South Carolina public servant to be selected for Trump's administration. Earlier this month, Gov. Nikki Haley was named as Trump's ambassador to the United Nations.