A former FBI boss has been named special counsel to oversee an inquiry into Russia's alleged meddling in the election and any Trump campaign ties.
In naming Robert Mueller, the deputy attorney general said it was in the public interest to have an outsider.
The appointment was widely endorsed by politicians from both sides.
In a tweet President Donald Trump described the situation as "the single greatest witch hunt of a politician in American history".
He also questioned why his election opponent Hillary Clinton and his predecessor President Barack Obama had not been investigated.
"With all of the illegal acts that took place in the Clinton campaign and the Obama Administration, there was never a special councel [sic] appointed," he wrote.
Calls for a special investigation had mounted since Mr Trump fired the most recent FBI director, James Comey, last week.
The announcement apparently took the White House by surprise, with Mr Trump only being informed of it after Deputy Attorney General Rod Rosenstein had signed the order.
The FBI and Congress are looking into potential links between Mr Trump's campaign team and Russia. Mr Mueller will take over the FBI investigation.
US intelligence agencies believe Moscow tried to tip the election in favour of Mr Trump.