Merkel is among 15 recipients of the award named by US President Barack Obama, who also named former president George H.W. Bush, investor Warren Buffett and poet Maya Angelou.
"These outstanding honourees come from a broad range of backgrounds and they've excelled in a broad range of fields, but all of them have lived extraordinary lives that have inspired us, enriched our culture, and made our country and our world a better place," Obama said in a statement.
Obama noted that Merkel "is the first woman and first East German to serve as chancellor of a unified Germany" and "has often said that freedom is the happiest experience of her life."
The awards, to be presented at a ceremony early next year, also will be given to American artist Jasper Johns; celebrated cellist Yo-Yo Ma; former baseball star Stan Musial; former basketball star Bill Russell; and former labour federation leader John Sweeney.
Other recipients will include Representative John Lewis, a longtime civil rights activist; and John Adams, co-founder of the Natural Resources Defence Council environmental advocacy group.
Obama also named for the honour Gerda Weissmann Klein, a Jewish Holocaust survivor who has written several books about her experiences, and will award the medal posthumously to Tom Little, an optometrist who was murdered in August 2010 by the Taliban in Afghanistan, where he was working on a humanitarian mission.
The White House also said the presidential award will go to Sylvia Mendez, a civil rights activist of Mexican and Puerto Rican descent; and Jean Kennedy Smith, founder of VSA, a non-profit organization that promotes the artistic talents of children, youth and adults with disabilities.
In the past, the award has been given to other heads of government and state including Tony Blair of Britain, South Africa's Nelson Mandela, Helmut Kohl of Germany and former Australian prime minister John Howard.
Former US presidents who have received the award include Gerald Ford and Jimmy Carter.