Trump's announcement came before a Cabinet meeting at the White House.
"Today, the United States is designating North Korea as a state sponsor of terrorism," Trump said. "Should have happened a long time ago. Should have happened years ago.
"In addition to threatening the world with nuclear devastation, North Korea has repeatedly supported acts of international terrorism, including assassinations on foreign soil."
Former President George W. Bush originally designated North Korea as a terrorism sponsor, but removed Pyongyang in 2008 in an effort to broker a nuclear deal.
The U.S. State Department lists Sudan, Syria and Iran as nations that have "repeatedly provided support for acts of international terrorism." Former President Barack Obama removed Cuba from the list in 2015.
Secretary of State Rex Tillerson told reporters the administration still hopes for diplomacy with North Korea, but that the designation will increase the pressure.
"The truth of the matter is the people of North Korea already live under enormously difficult conditions, and I think what we're focused on is a mission that's going to change North Korea's trajectory, change their path," he said during the daily White House press briefing.
The designation will trigger additional sanctions.
U.S. financial institutions are already banned from engaging in business with people or entities associated with the North Korean government.
"I think it is very symbolic, on the one hand, because it just points out, again what a rogue regime this is," Tillerson said of the designation. "The practical effects may be limited."
Last month, 16 members of the U.S. House of Representatives sent a letter to the State Department calling for North Korea's re-designation on the terror list.
Trump made the announcement one week after returning from a trip to South Korea, China, Vietnam and the Philippines.