"We’re a small team up for a big challenge... so we’ve chosen a driver with the talent and hunger to match our own on-track ambitions," said owner Stephen Fitzpatrick in a statement.
"Pascal has impressed in testing for Mercedes and Force India, together with commanding performances in DTM... Manor Racing is perfectly placed to help Pascal make a big impact in his first season."
The 21-year-old German, whose mother is from Mauritius, became the youngest DTM champion in 2015 when he won the title with Mercedes.
That domestic series pits Mercedes against rivals Audi and BMW in cars that superficially resemble production models but whose performance is closer to single-seater racers.
While Mercedes dominated Formula One last season with triple champion Lewis Hamilton and Nico Rosberg winning all but three races, Manor - as Marussia - failed to score a point and finished last in 10th place.
Team principal and founder John Booth and sporting director Graeme Lowdon departed at the end of the year and the team's name has changed for 2016.
They have made some high-profile appointments and the switch from a year-old Ferrari engine to Mercedes power units should see them become more competitive even if they still have the smallest budget.
"Manor Racing is a great place for me to start my Formula One racing career," said Wehrlein, who thanked Mercedes for making the move possible. "It’s a small and totally focussed team and I soon hope to know everyone.
"It will be a tough challenge but I think we should be able to challenge for points along the way."
The team have only scored points once, with the late French driver Jules Bianchi in Monaco in 2014. They almost folded at the end of that season before being rescued from administration.
Mercedes had initially played down speculation Wehrlein could be part of the Manor deal, arguing that the former Marussia team needed drivers who brought sponsorship with them.
Manor had American Alexander Rossi, Britain's Will Stevens and Spaniard Roberto Merhi racing for them last year.Indonesian Rio Haryanto has also been linked to a 2016 race seat, but needs to raise money to secure it.
(Additional reporting by Karolos Grohmann in Berlin,; Editing by Ken Ferris)
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