He was going to act as a stand-in for injured Ferrari driver Felipe Massa but pulled out because of a neck injury sustained in a motorcycle accident last February.
Recent medical checks have been positive, though, and he is confident he is back to full fitness.
Schumacher 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.
Lucas di Grassi, who will make his debut with Virgin Racing next season, believes Schumacher still possesses the will to win after losing to him in a recent karting event in Brazil.
"He's the most competitive guy that I know," Di Grassi said recently. "Everybody I know goes there [to the karting event] to have a good time and enjoy it and have fun. Michael goes there and spends two hours making a seat one millimetre higher."
Report - Schumacher returns to F1
Williams driver Rubens Barrichello, who drove with Schumacher at Ferrari, suggested the German driver's track record was the key to Mercedes' decision to lure him out of retirement.
"Experience is all that matters in F1 now," former Brawn driver Barrichello wrote on his Twitter feed. "The team needed me last year and needs Schumi now. I hope for a great fight, but a clean one as well."
BBC analyst Martin Brundle believes his former team-mate from his Benetton days will have to work hard on his return to the sport.
"Michael says he has charged his batteries on his break, but I think he will need a couple of extra long life ones in his pocket," he said.
"The last two championships he contested, Fernando Alonso won both and hasn't slowed down since then.
"There are drivers like Button, Hamilton and Sebastian Vettel on the scene now, and Michael is going to have to pedal very hard to beat those guys.
"I wouldn't bet against him winning some races, or even the championship, but he will have his work cut out."
Classic F1 - Schumacher's first win
Mercedes chief executive Nick Fry believes Schumacher's return has captured the imagination of their team rivals and the sport's fans.
"The thing that has been very interesting is that all of F1 wants Michael back," Fry told BBC Radio 5 live.
"So many team principals have told us in the last few weeks that they really hoped he would come back.
"Its good for the sport and will help us build more and more fans around the world and that's important for all of us."
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