The 30-year-old left-hander, one of the most flamboyant batsmen in world cricket and man of the tournament in India's World Cup triumph last year, was named in a 15-man squad for the 12-nation tournament which begins next month.
Yuvraj, who completed chemotherapy in the United States in April to treat a germ-cell tumour between his lungs, has not played competitive cricket since two home Tests against the 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," chairman of selectors Krishnamachari Srikkanth told reporters in Mumbai.
"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 was a key figure 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.
He rose to fame when he smashed England's fast bowler Stuart Broad for six sixes in one over during the inaugural World Twenty20 in South Africa in 2007, which India went on to win.
India failed to reach the semi-finals in the next two editions in 2009 in England and 2010 in the West Indies.
The squad, announced in a media release by the Board of Control for Cricket in India, also includes seasoned off-spinner Harbhajan Singh and seamer Lakshmipathy Balaji.
Harbhajan, 32, a veteran of 98 Tests, 229 one-dayers and 23 Twenty20 internationals, makes a comeback after being ignored since August last year.
Balaji, who last played for India in 2009, returns to the national squad after an impressive run in domestic cricket and the Indian Premier League Twenty20 competition.
India have been drawn with defending champions England and Afghanistan in the preliminary group A, from which two teams will advance to the Super Eights round.
The squad will prepare for the tournament with two Twenty20 matches against New Zealand in Visakhapatnam on September 8 and Chennai on September 11. The World Twenty20 runs from September 18 to October 7.
India's World Twenty20 squad:
Mahendra Singh Dhoni (capt)(wkt), Gautam Gambhir, Virender Sehwag, Suresh Raina, Virat Kohli, Yuvraj Singh, Irfan Pathan, Ravichandran Ashwin, Zaheer Khan, Lakshmipathy Balaji, Ashok Dinda, Rohit Sharma, Piyush Chawla, Harbhajan Singh, Manoj Tiwary.
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