The 14-time grand slam champion won the title in 2008 and was back in West Kensington in 2015 after a gap of four years.
It was not a happy return, however, with the popular Spaniard losing his opening match to Alexandr Dolgopolov as Murray went on to lift the trophy for a fourth time.
Nadal said: "I love playing at the Queen's Club and I am very happy that I will be back this year. I will never forget winning the title in 2008; it was a special moment, and going on to win my first Wimbledon.
"Holding that trophy again would be amazing, although I am well aware of the difficulties because the tournament always has so many good players.
"With Wimbledon just one week after, it is also important to be playing at Queen's because it offers the perfect conditions and allows me to be with the British fans who always have given me great support."
World No.5 Nadal has played at Queen's on six occasions, with his 2008 triumph marking an impressive treble alongside the French Open and Wimbledon.
Tournament Director Stephen Farrow added: "For Rafael Nadal to join our field of players so early is a huge boost to the Aegon Championships. He is one of greatest and most popular players that has ever picked up a tennis racket.
"He will join our defending champion Andy Murray at The Queen's Club, and we look forward to welcoming them both in June."
The Aegon Championships begin on June 13, with Murray looking to become the first player to win a record fifth title.