Idaho Gov. C.L. "Butch" Otter made the announcement Thursday morning at the Idaho Falls Regional Airport.
Boise in southwestern Idaho and Coeur d'Alene in northern Idaho had also been in the running for the center.
The center is intended to serve as a safety net to treat at-risk mentally ill people whose symptoms often land them in hospitals or jail.
The Idaho Department of Health and Welfare says a committee selected Idaho Falls based on outstanding community and legislative support from the city and surrounding area.
The agency says information from the center will be used to determine the feasibility of setting up other centers in other communities.