The singer, who rose to fame in the 1970s on the back of hits such as Lost in France and It's a Heartache, will be hoping to fare rather better than last year's entrant, Engelbert Humperdinck, who finished second last.
Tyler said: "I am truly honoured and delighted to be able to represent my country at Eurovision, and especially with such a fabulous song. I promise to give this everything that I've got for the UK."
Still popular in Europe, Tyler last enjoyed UK chart success in the mid-80s. She reached number one with Total Eclipse of the Heart in 1981 and number two with Holding Out for a Hero in 1984.
She will perform a new song, Believe in Me, written by Desmond Child, Lauren Christy and Christopher Braide.
The BBC's controller of entertainment and events, Katie Taylor, said: "Bonnie Tyler is truly a global superstar with a fantastic voice and we are delighted she will be flying the flag for the UK in Malmö."
It is 16 years since the UK last won Eurovision with Love Shine a Light by Katrina and the Waves in 1997.
There were high hopes for Humperdinck who was chosen despite being best known for a 45-year-old hit, Release Me.
However, his song, Love Will Set You Free, scored only 12 points and left him just one place from the bottom of last year's rankings.
Tyler will have it all do to after "Royaume-Uni" has finished bottom three times in the past decade.
The UK also appears to have suffered from so-called "bloc voting" by some European countries. Such was erstwhile host Sir Terry Wogan's frustration at such tactics that he quit the job in 2009, and was replaced by Graham Norton.
Lewis Carnie, the BBC's head of special projects, said: "Bonnie is an artist with an international reputation and I am delighted that she has chosen to represent the UK in this year's contest.
"It is a great song and a truly wonderful performance that I am sure will do the nation proud."
Eurovision will be broadcast live on 18 May on BBC1 and Radio 2, where commentary will be provided by Ken Bruce.
The semi-finals will air on BBC3 on 14 and 16 May.
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