Mrs Clinton broke the news in a tweet late on Friday. She plans a formal announcement on Saturday.
Mrs Clinton passed over more left-leaning candidates in favour of the 58-year-old senator, who is a strong supporter of free-trade agreements.
His home state of Virginia is a major battleground in the coming election.
Mr Kaine speaks fluent Spanish and could help the Clinton campaign maintain its support among Hispanic Americans – a growing voting bloc.
An experienced politician who has been toughly vetted, he is considered a “safe” choice for the vice-president slot. He personally opposes abortion but supports abortion rights.
Analysis: Kim Ghattas, BBC News, Washington
Clinton went for substance not sizzle, a safe choice rather than a firebrand who could excite the party faithful.
She felt confident perhaps that she could keep left-leaning Democrats on her side while broadening her appeal with a centrist running mate, reach out to those independents and even moderate Republicans turned off by their party’s candidate Donald Trump.
Most of all her aides had told me she wanted someone she felt comfortable working with for the next four, even eight years, someone who knew how to get things done, and Virginia Senator Tim Kaine’s record as a former mayor and governor fits that description. He’s also never lost an election.
He will disappoint some liberals namely because of his pro-trade position, which he will have to temper now.
The Republican National Committee dismissed the ticket as the ”failed Democratic status quo”. But even some Republicans, like Arizona senator Jeff Flake, said Mr Kaine was an all around nice guy.
Mrs Clinton says her running mate has a relentless optimism, a much-needed attribute in an election season often described as dark because of the rhetoric of Donald Trump.
Mr Kaine was a finalist to be Barack Obama’s running mate in 2008 and served as Virginia governor before his time in the Senate.
Mrs Clinton also reportedly interviewed liberal firebrand Senator Elizabeth Warren of Massachusetts and Senator Cory Booker, an African-American senator from New Jersey. Agriculture Secretary Tom Vilsack was said to have been on her shortlist.
Republican presidential candidate Donald Trump, in a text to his supporters, described President Obama, Mrs Clinton and Mr Kaine as “the ultimate insiders” and appealed to voters to not “let Obama have a third term”.
Republican Party chief Reince Priebus tweeted scornfully: “Hillary Clinton’s choice of Tim Kaine does nothing to unify a fractured Democrat base repelled by her dishonesty and cronyism.”
