The announcement was made on Thursday by bass player Michael Bradley and event mastermind, and writer of the London 2012 Olympic Opening Ceremony, Frank Cottrell Boyce.
The Undertones will play a live set on Saturday 8 June, when the city's Gasyard plays host to the Here Comes the Summer stage as part of Welcome to ColmVille.
They will also be taking centre stage in the punks section of the People's Procession, along with an armada of floats and hundreds of local residents in extravagant costume.
The procession will run along Foyle Embankment, Strand Road and Queens Quay in the city.
Speaking about The Undertones' involvement, Michael Bradley said: "The idea of us playing at the back of a lorry in a big procession is great. I would have been annoyed if I wasn't asked to take part. It'll bring back memories of the bands waving at the crowds during the civic week parades.
We want the city to become ColmVille for the day.
Frank Cottrell Boyce
"There's a real excitement as people sign up to take part of the procession and rest of the show. There is still time and anybody can get involved."
Frank Cottrell Boyce added: "We want the city to become ColmVille for the day, letting the people find the quirky and unfamiliar stories of Derry~Londonderry at different venues.
"It's fantastic that the Undertones can be part of that."
The event, which takes place on 7 June and 8 June, will welcome the mysterious saint and founder of the city back to Londonderry and will showcase some of the remarkable tales, people and events he has missed over the past 1,500 years.
It is expected that almost 1,000 volunteers will take part in the extravaganza.