Jones will sing Never Give Up On You when she represents the UK at the competition in Kiev, Ukraine in May.
The song was co-written by Emmelie de Forest, the Danish singer-songwriter who won the song contest in 2013.
Jones won a live voting programme on BBC Two on Friday night, where she competed against five other former X Factor contestants.
Jones, who came eighth on X Factor in 2009, was in tears as host Mel Giedroyc revealed the result.
"I can't believe you picked me - thank you so much", she said.
The Welsh singer later tweeted: "Completely overwhelmed and so surprised. Tonight's been one of the best nights of my life."
Singer Sophie Ellis-Bextor and Strictly Come Dancing's Bruno Tonioli were judging the performances on Eurovision: You Decide, broadcast from London's Hammersmith Apollo.
Jones fended off competition from fellow X Factor stars including Danyl Johnson, who featured alongside Jones in the 2009 series, as well as Salena Mastroianni, Nate Simpson, Holly Brewer, and Olivia Garcia.
Former X Factor contestant Lucie Jones has been named as this year's Eurovision song contest entry.