The award, given by the Royal Swedish Academy of Music, will be bestowed upon the 'Gloria' singer and classic string group Kronos Quartet by Swedish monarch King Carl XVI Gustaf in a ceremony to be held on August 30.
"Patti Smith has demonstrated how much rock'n'roll there is in poetry and how much poetry there is in rock'n'roll," the Academy said in a statement.
"She has transformed the way an entire generation looks, thinks and dreams."
Winners receive one million kronor (£100,000; $165,000) as well as recognition at the ceremony held in Stockholm.
Past recipients of the prize, which was founded in 1989 by the late music mogul Stig Anderson, include Sir Paul McCartney, Pink Floyd, Stevie Wonder and Bjork.
Smith was previously honoured with the prestigious National Book Award for her memoir Just Kids.
She has also received a special lifetime achievement award from music publishing company ASCAP.