The 71-year-old will take the Sunday night slot as part of his From Gasoline Alley To Another Country hits tour.
He will join Canadian rockers Arcade Fire, who were previously announced as Saturday night’s headliners.
Sir Rod said: “I have been very lucky to have played many of the world’s finest venues and festivals but never played the legendary Isle of Wight Festival.
“I am so excited to put that right. June can’t come round soon enough.”
Famous for his hits including Maggie May, Sailing, Do Ya Think I’m Sexy and Baby Jane, Sir Rod has sold more than 200 million records.
Isle of Wight Festival promoter John Giddings said: “I’ve wanted Rod Stewart to play at the festival for a number of years - he’s an incredible icon with a career that’s spanned over five decades, so it’s impossible to not be a fan.
“On Sunday night he’ll bring an incredible energy to create an unforgettable moment.”
The 2017 event will be the 16th Isle of Wight Festival since the legendary festival of the late 1960s was relaunched. Acts who have taken to the stage since the revamp include David Bowie, Sir Paul McCartney, Coldplay, The Rolling Stones, Blur, Foo Fighters and Fleetwood Mac.