The three day event, held in May, will coincide with Derry's celebrations as UK City of Culture for 2013.
It is the second time the city has hosted the Big Weekend, it was previously held in Derry in 2004.
Derry-born singer songwriter Soak, who supported Snow Patrol at their acoustic gigs in the Waterfront Hall just before Christmas, played live on Nick Grimshaw's breakfast show as he revealed the venue of this year's event.
SDLP Foyle MLA Mark H Durkan said people are excited at the announcement.
"Many have fond memories of the last time we hosted One Big Weekend several years ago and many younger people who missed that are looking forward to this time around.
"Tribute must be paid to those who have worked so hard to secure this gig and ensured that one big ambition has become one big achievement," he added.
Earlier this month some of the city's best known artists gathered for the Sons and Daughters, the opening concert for the City of Culture celebrations.
Snow Patrol's Gary Lightbody, Phil Coulter, Dana and James Nesbitt took to the stage for the show which was held in Ebrington - the same venue for the One Big Weekend concerts.
Presenter and DJ Nick Grimshaw, who was in the city on Thursday to announce the event, said he's pleased with the chosen venue.
"I think it's really nice, because usually we'll be in a field, we don't get to see the city so it's great we're going to be right slap bang in the middle, the views are amazing," he told UTV.
Jason Carter, who is in charge of live music at BBC Radio One, said: "The last Big Weekend in the city in 2004 was a legendary music moment in Northern Ireland, and it's so great to be able to return with an even bigger show second time around.
"The concerts will be almost twice the capacity of the previous visit, and for the very first time, the event will run across three days. I have no doubt it will be a spectacular weekend of music in the heart of the city."
The city's mayor Kevin Campbell said: "We are delighted that Radio One has decided to come back to Derry and bring some of the world's top performing artists to be part of our City of Culture celebrations.
"The return of Europe's biggest free ticketed music event is a huge coup for the city and we are hugely excited about it."