"I'm proud to know that little girls everywhere can now play with a Barbie who chooses to wear hijab! This is a childhood dream come true," Muhammad said in a tweet.
The news was announced at Glamour's Women of the Year summit. The doll will go on sale in 2018.
Barbie has been working hard to make its collection of dolls more diverse in an effort to broaden the brand's appeal.'
Read more: Barbie's first hijab: Meet the new Ibtihaj Muhammad doll