The 'Mexico' singer posted on his website a letter from the French government revealing that he had been selected for the prestigious prize.
Taylor is to be given the award at an upcoming ceremony at the French embassy in New York City.
France's Ordre des Arts et des Lettres was established in 1957 to honour those artists and cultural figures who have made significant contributions to society.
Penelope Cruz, Kylie Minogue and The Police have all been named Chevaliers of the Order of Arts and Letters in recent years.
Taylor joins a small list of Americans who have been given the honour which includes George Clooney, Tim Burton and Maxwell L Anderson.
Watch James Taylor perform 'Mexico' below:
