The actor, best known for playing the Lord of the Rings and Hobbit wizard Gandalf and the X-Men supervillain Magneto, is to be given a star in the town's Believe Square.
The 75-year-old lived in Wigan in the 1940s and has said he was inspired to act by watching market traders there.
He said he was looking forward to returning to accept the honour in June as Wigan "holds many special memories".
The actor, who was born in Burnley in 1939, moved to a semi-detached house near Mesnes Park with his family at the age of three and stayed there until he was 11.
McKellen has spoken previously of his love of watching brass bands play in the park, the performances of the Frank Fortescue Players at the town's now-defunct Hippodrome and how traders pedalling their wares in Market Square was one of the things that sparked his interest in acting.
Sir Ian gone on to become one of Britain's best loved actors, combining his film performances with Shakespearean roles on stage and even a cameo appearance on Coronation Street.
"It will be fascinating to see how the town has developed since 1951, when our family moved to Bolton," he said. "If only the Hippodrome was still there."
Wigan Council leader Lord Peter Smith said Sir Ian was "rightly one of this town's most loved sons", adding there were "few better ambassadors".
Believe Square was unveiled in 2013 to celebrate the sporting achievements of the town's rugby league and football clubs.
Other personalities honoured include writer and broadcaster Stuart Maconie, athlete Jenny Meadows, football manager Roberto Martinez and pioneering heart surgeon Dr Nayyar Naqvi.

Alan Blacker, known as Lord Harley in a trial last year, is said to have used titles which were "inaccurate".
He also appeared with St John Ambulance medals and ribbons on his chest, despite not being a St John member.
The Solicitors Disciplinary Tribunal is investigating.
Mr Blacker was defending minibus driver Andrzej Wojcicki, jailed for five years after being found guilty of causing the death of a cyclist by dangerous driving in Caerphilly county, when he was scolded by Judge David Wynn Morgan for his appearance.
He told him: "If you want to look like something out of Harry Potter you can forget coming to this court ever again."
Mr Blacker complained to the Judicial Conduct Investigations Office about the comments, saying he was upset his "qualifications, status and offices were brought into disrepute".
St John in Wales later said Mr Blacker was not a member of the Order of St John and it had contacted the police over the issue.
Now, the Solicitors Disciplinary Tribunal is looking into seven allegations, including that Mr Blacker:
The allegations are subject to a hearing before the Solicitors Disciplinary Tribunal and are as yet unproven.
Sir Ian McKellen is to be honoured by his childhood hometown of Wigan.
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A lawyer criticised by a judge for dressing "like something out of Harry Potter" is being investigated for allegedly misleading Cardiff Crown Court.