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.”
They are the first headliners to be announced for the festival which will be marking its 15th year since it relaunched in 2002.