Celebrating 100 years of Indian cinema, the festival will honour him for for his strong ties with the region and constant support to the festival.
The award and honour will be received by Yash Chopra's wife Pamela.
"Yashji had a close connection with the IFFM. He was happy to support it as he believed in promoting Indian films in foreign countries," Pamela told in a statement.
"I am grateful to the festival and the Victorian government for this honour and happy to travel to Melbourne to collect the same and keep the support and connection alive," she added.
Even the Agora cinema in Melbourne is being renamed as the Yash Chopra Cinema. It will be inaugurated by Pamela May 6.
Mitu Bhowmick Lange, IFFM festival director, said: "We have been fortunate to enjoy the support and guidance of Yash Chopra."
Two of Yash Chopra's productions - Salaam Namaste (2005) and Chak De! India were shot in Melbourne. The filmmaker died last year.
This will be the second edition of IFFM, which will be held May 3-22 this year.