The president endorsed the 59-year-old Hagerty via Twitter, calling him strong on crime and borders.
"Tennessee loving Bill Hagerty, who was my Tennessee Victoy (sic) Chair and is now the very outstanding Ambassador to Japan, will be running for the U.S. Senate," Trump tweeted. "He is strong on crime, borders & our 2nd A. Loves our Military & our Vets. Has my Complete & Total Endorsement!" Trump tweeted.
A spokesperson for Hagerty, a Nashville native, did not immediately respond to a request to confirm Trump's announcement.
During his two years as ambassador, Hagerty has played a key role in trade talks with Japan.
Trump's announcement comes a day after Tenneessee's former GOP Gov. Bill Haslam said he wouldn't run for the open seat being vacated by three-term Republican Sen. Lamar Alexander.
Hagerty served in Haslam's cabinet from 2011 to 2015 as his economic development commissioner. He also served as Tennessee's finance chairman for the Trump Victory Committee, The Tennesseean reported.
He must resign from his ambassadorship before officially entering the race. Veteran GOP strategist Ward Baker will head Hagerty's campaign, Politico reported.
Aside from Haslam, several Republicans have passed on the Senate race, including Rep. Mark Green. Nashville orthopedic surgeon Manny Sethi entered the contest last month and Rep. David Kustoff tweeted Thursday that he would consider running.
James Mackler, an attorney and Iraq War veteran, is the lone Democrat in the field.