Murray teamed up with Laura Robson at the mixed team tournament in 2010 and 2011, with the pair reaching the final on their first appearance.
The national teams face each other in a round-robin format, with each match comprising a men's singles, a women's singles and a mixed doubles.
Both times Murray previously played at the Hopman Cup he went on to reach the final of the Australian Open, losing to Roger Federer in 2010 and Novak Djokovic the following year.
The former Wimbledon champion said on hopmancup.com: "I find it very good preparation for the Australian Open. The organisers look after everyone extremely well there.
"You get at least three single matches, you get the mixed doubles as well, which is good fun, it sharpens up the net game. Now that it's outdoors too, it's absolutely perfect, so I'm looking forward to it."
Murray warmed up for the Australian Open by winning the tournament in Brisbane in 2012 and 2013, while this year he played in Doha.
Watson, who has just climbed back into the top 50, will be making her debut at the Hopman Cup, which begins on January 4.
She said: "This will be the first time Andy and I will have played mixed doubles so I hope we can do our best to win the Hopman Cup. That would be brilliant."
The Australian team has also been announced, with Wimbledon star Nick Kyrgios joining Perth native Casey Dellacqua.