The show, with singer Adam Lambert, will be the band's debut performance at a UK music festival and their only UK show in 2016, organisers said.
Guitarist Brian May said former frontman Freddie Mercury "would have loved it".
The rock legends will close the four-day festival at Seaclose Park, Newport, on 12 June.
Queen drummer Roger Taylor said: "When I think of The Isle of Wight Festival I think of Hendrix, Dylan and The Who. What immortal company to be in.
"Queen are thrilled to be there and can promise a special night."
The band recently celebrated the 40th anniversary of their record-breaking worldwide hit single Bohemian Rhapsody.
They are the first headliners to be announced for the festival which will be marking its 15th year since it relaunched in 2002.
Queen have been revealed as the Sunday night headliners for The Isle of Wight Festival next year.