The track cycling star is Britain's most successful active Olympian, and hopes to add to his four gold medals in London.
The 36-year-old becomes the first cyclist to carry the flag at an opening ceremony, though he was Britain's flag-bearer at the closing ceremony in Beijing four years ago.
He said: "I'm absolutely delighted and honoured to have been voted as the flag bearer for Team GB. To lead out your team at a home Olympics is truly a once in a lifetime opportunity and one that that I can't wait to experience in just a few days time."
Roughly half of Britain's 542-strong delegation are expected to take part in the ceremony.
Competitors taking part in the first three days of competition, such as Rebecca Adlington and Ben Ainslie, are likely to stay away, while the entire athletics team will be at a training camp in Portugal.
British team chief Andy Hunt said: "Team GB could not have placed the flag in better hands. It is a great honour for Sir Chris and the team will be proud to march behind him. He is a fantastic ambassador for his sport and his country."
Hoy's recognition is more good news for the sport, according to British Cycling president Brian Cookson, who like Hoy carried the Olympic torch a few weeks ago.
“To be selected as a flag bearer at any Olympic Games is a great honour but to be selected for the home Games is an extra special achievement and I’d like to personally congratulate Sir Chris," he said.
"Chris has been an outstanding ambassador to the sport of cycling throughout his extensive career, and we’re proud that he is a fellow member of British Cycling.
"To have Chris carry the flag on behalf of Great Britain is another milestone in the success of cycling in Britain.”