The former McLaren driver, who retired after the Abu Dhabi Grand Prix last November, will replace Fernando Alonso who is set to race at this year's Indianapolis 500.
McLaren announced Wednesday that it was entering this year's Indy 500 -- a race the British team won three times during the 1970s -- which falls on the same day (May 28) as the Monaco Grand Prix.
Button is still employed by McLaren as a technical adviser and was widely tipped to replace Alonso.
"I'm thrilled to be making a one-off return to Formula 1 racing, and I couldn't think of a better place to make that return than my adopted home Grand Prix: Monaco," Button said in a statement on the McLaren website.
"I've won the race before, in 2009, and it's one of my all-time favorite racetracks.
"It's a tricky street circuit on which a good driver can really make a difference -- and, although the McLaren-Honda MCL32 hasn't begun the season well, I think it may be more suited to Monaco than to the faster circuits."
Button's one and only victory on the streets of the Principality came the same year he clinched the world title with the Brawn GP team.
The 37-year-old has competed in 305 races -- one of only three drivers in F1 history to notch more than 300 grand prix starts -- winning 15 times.
Button isn't expecting miracles in Monaco -- McLaren has been dogged by reliability issues since switching to Honda engines in 2015 -- but is determined to do his best and have some fun.
"I realize we won't have a realistic chance of repeating my 2009 victory, but I think we'll have an opportunity to score world championship points, which will be very valuable to the team in terms of constructors' rankings.
"And it'll be nice to say 'hi' to all my old Formula 1 mates too, and hopefully to give the fans something to cheer about."