The debut album from the Dun Laoghaire-based band shot straight to the top of the Irish charts when it was released in spring this year.
"It's a real pleasure and a privilege to be nominated for the Mercury Prize," said O'Brien.
Conor has received critical acclaim as a talented songwriter and guitarist; Jon Pareles of the New York Times compared him to Leonard Cohen when he caught one of his shows.
Villagers have been going from strength to strength this summer, including an appearance on Later...With Jools Holland, the legendary live music show that has provided a vital start for countless artists since 1992.
Growing up in Dun Laoghaire, O'Brien wrote his first song, aged just 12, a week after his older brother lent him his acoustic guitar. Villagers formed after the break-up of O'Brien's first band, The Immediate, which he formed with three school friends.
Other bands announced on this years Mercury Music Prize shortlist include Wild Beasts, Mumford And Sons and The xx; the winning album will be announced on September 7.