The move drew criticism from Republicans in Congress who slammed him for going beyond a more modest legislative proposal, and said the move could put border security at risk.
Obama - who is extolling the economic benefits of tourism this week - took a 10-minute stroll over to the Interior Department from the White House to sign the proclamation, greeting tourists from Israel, China, Germany and elsewhere who were walking on the National Mall.
Obama said the designation could double visitors to the region and boost the local economy by more than 70 percent.
"Anyone who's ever seen the Organ Mountains that overlook Las Cruces, New Mexico, will tell you that they are a spectacular sight," Obama said.
"You got massive rocks that jut up 9,000 feet (2,740 meters)in the air and stretch for 20 miles (32 km), like the organ pipes of a giant," he said.
Obama recounted how Billy the Kid inscribed his name into "Outlaw Rock" more than 130 years ago, and said Apache chief Geronimo is believed to have used the mountains to hide out.
The administration said the designation had the backing of local business people, ranchers, tribal leaders and others in the region.
But Republican Congressman Steve Pearce called the move a "land grab" that could hurt security in the region.
House Republican Speaker John Boehner said the monument could hurt border security.
But a spokeswoman for U.S. Customs and Border Protection said that was not true, noting in a statement that the designation would "in no way limit our ability to perform our important border security mission."
Obama criticized Congress for moving too slowly to preserve land, and said conservation bills have been stuck in gridlock.
"I've preserved more than 3 million acres (1.21 million hectares) of public lands for future generations. And I am not finished," Obama said.