The team confirmed the return of the 40-year-old German on Wednesday in Berlin.
Schumacher won two F1 driving titles with Benetton, and then claimed five straight titles with Ferrari from 2000 to 2004.
In his career, he won 91 races in 250 starts, was on the podium 154 times and earned 68 starts from the pole position.
Schumacher retired at the end of the 2006 season, and has served as a consultant for Ferrari since then. He occasionally raced a motorcycle, but hurt himself in a February 2009 crash.
He was going to fill in for injured Ferrari driver Felipe Massa partway through the 2009 season, but pain from his motorcycle crash halted that comeback attempt.
"I have no doubt about my ability. My old hunger for racing is back," Schumacher said Wednesday.
"For me, the imagination to be back in a F1 car and to compete for the world championship is exciting and extremely inspiring. I think the duels on the race track will be electrifying," he said.
Schumacher's teammate with Mercedes for the 2010 season will be Nico Rosberg.
Source: CBC News