By replacing Jeff Sessions, who was fired by Mr Trump last month, the 68-year-old will take charge of the investigation into alleged Russian meddling in the 2016 US election.
US media report he has been critical of some aspects of that inquiry.
A well-known conservative lawyer, Mr Barr held the role under President George H W Bush from 1991 to 1993.
The president called him a “highly respected lawyer” by both Republicans and Democrats and “a terrific man” while speaking to reporters on the White House South Lawn.
“I did not know him until recently, when I was going through the process of looking at people,” Mr Trump said. “He was my first choice from day one.”
Currently, Mr Barr is counsel at the Kirkland & Ellis law firm in Washington DC.
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