The 30-year-old left-hander was named in a 15-man squad for the tournament to be played from September 18 to October 7.
Yuvraj, who completed chemotherapy in the United States in April, has not played competitive cricket since two home Tests against West Indies last November.
He only recently began light training at the National Cricket Academy in Bangalore.
"It is good to see Yuvraj back. He is fit and has fought his way back," said chairman of selectors Krishnamachari Srikkanth.
"He has been one of the most important members of the Indian team. With this combination, we have a great chance to win the World Twenty20."
A delighted Yuvraj tweeted that it seemed he was making his debut all over again.
"Can't explain how I feel!" Yuvraj wrote.
"Feels like I'm going to play for India for the first time. Its a special day for me.
"When I was diagnosed with cancer I always thought in my heart that one day I will come back and play for India. So here I am ready to represent my country once again.
"Its a huge honour. I can't wait to step on the field and wave the Indian flag!"
Yuvraj played a key role in India's 50-over World Cup triumph last year, scoring 362 runs and taking 15 wickets in nine matches to be named man of the tournament.
The squad also includes off-spinner Harbhajan Singh.