It is widely rumored that Iacocca came up with the name after attending an SMU Mustangs college football game. The story goes something like this. Iacocca and several Ford execs were at an SMU football game which pitted the Mustangs against the Michigan Wolverines. Although the Wolverines were off to a solid start, the Mustangs gave them a run for their money. Although Michigan was victorious in the end, Iacocca was won over by the team's spirit. He supposedly walked into the locker room and said, "Today, after watching the SMU Mustangs play with such flair, we reached a decision. We will call our new car the Mustang. Because it will be light, like your team. It will be quick, like your team. And it will be sporty, like your team." Although this makes for a great story, it is widely disputed and backed by no actual eyewitnesses other than Iacocca, who has not commented on the matter. As for my take on the situation, I'll stick with John Najjar's story until someone can prove otherwise.
Other names initially considered for the Mustang include the Cougar, Thunderbird II, T-Bird II, Torino, Turino, and T-5. After months of debating, Ford settled on the name Mustang.