Schumacher retired at the end of 2006 but will now return to the sport he dominated after signing a three-year deal with Mercedes.
He will reportedly earn £6.2m after reuniting with Mercedes team principal Ross Brawn, who masterminded all seven of his titles, the first two with Benetton in 1994-5 and the subsequent five with Ferrari from 2000-4.
Schumacher was forced to call off a planned temporary comeback as a stand-in for injured Ferrari driver Felipe Massa in the summer because of a neck injury sustained in a motorcycle accident last February.
But Schumacher recently underwent medical checks and is confident he is back to full fitness.
"I wouldn't have entered all of this if I wasn't confident," Schumacher explained.
"That confidence comes from some serious training with my neck to make sure it can withstand what it couldn't in the summer.
World championships: 7 (1994, '95, 2000, '01, 02, '03, '04)
All-time records: 7 drivers' championships; 248 grand prix starts; 91 race wins; 68 pole positions; 154 podium finishes
This summer Schumacher signed a revised contract as a consultant for Ferrari, but the Italian team have had to release him from his contract to enable him to race for the "Silver Arrows".
Schumacher revealed that it was Ferrari's request for him to fill in for Massa that sparked a desire to make a permanent return to the cockpit.
"It initiated something that I didn't know was there before," he conceded.
"I really didn't feel like it was what I wanted when Ferrari asked me but when I felt the responsibility I thought I ought to do it.
"What Ferrari initiated has triggered what you see right now.
Mercedes aim for top three in 2010
"I have to say it's been a tough to leave the Ferrari family, which has been a big part of my career."
Schumacher revealed he had spoken to Brawn in November about a potential return to F1 and that the return of the Mercedes name to F1 proved the final persuasion.
"I got a call from Ross asking me to race again, telling me Mercedes were going to be involved," added Schumacher.
"The only reason I came back was because of old friends at Mercedes. I spent years trying to get into F1 with Mercedes but it wasn't possible before.
"I hope I'll be judged by what I've done before but Mercedes is a strong partner and I'm thrilled to be back."
Schumacher and Brawn's partnership is set to be revived in 2010
Mercedes have completely changed their driver line-up following world champion Jenson Button's departure to McLaren and Rubens Barrichello's move to Williams.
The team are known to want German rising star Sebastian Vettel in the long term, but the 22-year-old is contracted to Red Bull until the end of 2012.
Rosberg signed for Mercedes shortly after the season and, after weeks of speculation, Schumacher arrives as his high-profile team-mate.
"We are incredibly excited by Michael Schumacher," said Brawn.
"He is the best judge of what he can do. He told me he can do it so I'm very confident.
"I have absolute trust in him. He'll do the job."
Brawn added that Button's decision to leave the team led to his pursuit of Schumacher.
"Jenson was not pushed," stated Brawn. "We have loyalty to Jenson but when that became difficult we started talking to Michael."
Schumacher's comeback is the most high profile in F1 since Austrian Niki Lauda came out of a two-year retirement for the 1982 season to race for McLaren.
Lauda, who was 33 at the time, went on to win a third world title in 1984.
He told me he can do it so I'm very confident
Mercedes team principal Ross Brawn
Juan Manuel Fangio is Formula 1's oldest world champion, the Argentine won a fifth world championship at the age of 46 before retiring.
Nigel Mansell won the 1994 Australian Grand Prix at the age of 41, having stepped in as a substitute for Williams for four races following the death of Ayrton Senna.
Now, Schumacher has said that he intends to make a glorious comeback by challenging for the 2010 world championship.
"I have won the title seven times and the team won both titles last year, so what do you expect," said Schumacher, who has broken almost every major record in the sport.
Schumacher flew into the UK to visit the Mercedes factory
"Now Mercedes are team owners you cannot expect anything else other than the world title.
"That is what we aim for but we have to deliver and that is our job.
"Honestly I can't wait until the 1 February when we will officially run the car."
Schumacher's decision brings his career to a neat conclusion - Mercedes, for whom he was racing in sportscars at the time, paid for his F1 debut with Jordan in 1991 but he has never raced for them in F1.
Mercedes pulled out of F1 in 1955 after winning back-to-back titles with Juan Manuel Fangio.
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