Zurich in Switzerland came second, and Auckland in New Zealand placed third. German-speaking cities dominated the rankings, with Munich, Düsseldorf and Frankfurt all in the top seven.
The study examined social and economic conditions, health, education, housing and the environment, and is used by big companies to assess where they should locate and how much they should pay expatriate workers.
Vienna’s government - currently a coalition of the social democrats and Greens - has a tradition of investing in high-quality social housing, making Vienna one of the most affordable European capitals to live in.
Eugene Quinn, who moved to Vienna from London, is a founding member of culture group space and place and runs a walking tour which explores why Vienna is the best city in the world to live in.
"Vienna is unusual because poor people live well here," he told The Local. "It has a slightly old-fashioned approach to still paying higher taxes, with the benefits of those taxes much more visible than elsewhere. It is a city of beauty, space and opportunity. And the people are great looking! It may never be cool... but cool is overrated."
However, he says life in Vienna does have some drawbacks. "It remains too bureaucratic, not so transparent, and has an ugly right-wing party leading in the polls. Plus smoking is - astonishingly - still cool and still allowed in bars."
The city has a low crime rate and an efficient and cheap public transport system. An annual travel card costs just €365 and the underground train network runs for 24 hours on weekends.
Austrian journalist and writer Klaus Hübner has lived in Vienna for the past 20 years and says that for him "quality of life starts with the quality of the drinking water" - which is excellent in Vienna. He adds that public services in Vienna are also outstanding thanks to a long-reigning socialist government - "the city is safe, clean, and runs smoothly on excellent public transport."
Vienna’s geographic location - close to Slovakia, Hungary, and the Czech Republic - has helped it define itself as a hub for companies wanting to do business in central and eastern Europe.
“Vienna has ranked top in the last seven published rankings,” said Mercer. “It scores highly in a number of categories; it provides a safe and stable environment to live in, a high level of public utilities and transport facilities, and good recreational facilities.”
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The refugee crisis, which has seen large numbers of refugees and asylum seekers pass through Vienna on their way to Germany, appears not to have had an impact on quality of life in the city, according to Mercer.
Last year 90,000 refugees claimed asylum in Austria, but recently the government has moved to introduce tougher border controls and a daily cap on asylum seekers which has seen the numbers drastically reduced.
The Mercer ranking helps boost Vienna’s image abroad, with the tourist board saying on Monday that tourism figures continue to grow, with visitor numbers from the USA, Spain and Britain showing particularly strong growth.