The 90-year-old Mugabe, who has ruled his country since 1980, succeeds Mauritania's President Mohamed Ould Abdel Aziz.
The announcement was made during the African Union's two-day heads of state summit at the organization's headquarters in Ethiopia's capital.
"During my tenure as Chair, I will deliberately provoke your thoughts to pay special attention to issues of infrastructure, value addition, agriculture and climate change. Lack of infrastructure has hampered economic development in Africa," Mugabe told African leaders.
"Frankly I don't believe if the elevation (Mugabe's appointment) is anything than symbolic," said Piers Pigou, Southern Africa project director for the International Crisis Group said.
The appointment raises questions in some quarters especially the west whether it's indicative of some kind of solidarity with Mugabe, Pigou said.
"His elevation sends a negative signal of African solidarity of leaders who've misruled their countries," he said.
Traditionally, the chairmanship is given to the leader of the country hosting the next summit, but exceptions have been made as in 2005 when it was the turn of Sudan's Omar al-Bashir but African leaders bowed to international pressures in the uproar over killings in Darfur. They passed over al-Bashir and instead kept Nigeria's Olusegun Obasanjo for a second year.
Zimbabwe, a once-prosperous nation of 13 million people in southern Africa, has struggled since Mugabe's government began seizing white-owned farms in 2000. Mugabe is accused of abuses by human rights groups. The country suffered hyperinflation until it abandoned its currency for the U.S. dollar in 2009.
Mugabe defeated rival Morgan Tsvangirai in a 2013 vote marked by allegations of irregularities. Mugabe's victory ended an uneasy power-sharing deal with the opposition, but foreign investors have been deterred by concerns about corruption and government policies to force foreign-owned and white-owned businesses to cede 51 percent of their shares to black Zimbabweans. Hundreds of manufacturing companies have closed in the recent past. Critics accuse Mugabe of being an independence hero turned dictator who like many African leaders of his generation have clung to power.