Balan, 35, one of the most respected performers in India, is best known for her path-breaking roles in films like The Dirty Picture, Kahaani and Parineeta.
The other big names joining Spielberg are Oscar-winning actress Nicole Kidman, Oscar-winner Christophe Waltz, Japanese director Naomi Kawase, Scottish director Lynne Ramsay, French actor-director Daniel Auteuil and Romanian director Cristian Mungiu.
The jury will award the coveted Palme d'Or prize to one of the 19 films in competition at this year's festival, which runs from May 15 to 26.
"Vidya Balan on cannes jury... awesome...," director Anurag Kashyap tweeted. Director Shekhar Kapur and actress Sharmila Tagore have previously been a part of Cannes jury.
Cannes has invited India this year to celebrate 100 years of country's cinema.
Apart from Vidya Balan, actress Nandita Das is also a part of a separate jury for short films.
The festival will open on May 15 with The Great Gatsby, which also has megastar Amitabh Bachchan in a cameo. The actor will be attending the opening ceremony while the festival has extended a special invite to his daughter-in-law Aishwarya Rai Bachchan, a regular at Cannes' red carpet.
This year, four Indian films have been selected in different non-competition categories at Cannes. Bombay Talkies, an anthology film by four directors --Kashyap, Dibakar Banerjee, Zoya Akhtar and Karan Johar -- will have a gala screening at the festival.
Kashyap will also be screening his Ugly in festival's Directors' Fortnight sidebar where he earlier showcased his two-part revenge drama Gangs of Wasseypur.
Dabba (Lunchbox) and Monsoon Shootout, co-produced by Anurag Kashyap, have been selected for Cannes Critics Week and Midnight Screening sections respectively.