The novelist, essayist and poet, who will receive $1.4m as part of the award, was also praised for writing with "the concentration of poetry and the frankness of prose".
Born in 1953, to a family from Romania's German minority, Mueller worked as a translator in a machine factory in the late 1970s.
She was dismissed when she refused to work as an informant for the Romanian secret police.
Mueller's mother spent five years in a Soviet Union work camp after being sent there from Romania.
In her 2009 book Atemschaukel, Mueller portrayed the condition of German Romanians deported to the Soviet Union in the 1970s.