Merkel will meet the exiled Tibetan spiritual leader for a "private exchange of thoughts" at the chancellery on Sept. 23, spokesman Ulrich Wilhelm said. It will be the first time that he has been received at the German chancellery.
Wilhelm said the meeting was part of a "continuity of meetings between the chancellor and religious leaders," both in Germany and during trips abroad.
The Dalai Lama fled Tibet for India in 1959 amid a failed uprising against Chinese rule. He remains highly popular among Tibetans, despite persistent efforts to undermine him by Chinese authorities.
China claims Tibet has been its territory for centuries, but many Tibetans say they were effectively independent for most of that period.
The Dalai Lama, who won the Nobel Peace Prize in 1989, has lived in Dharmsala, India, since fleeing Tibet.
German firms are eager to do business in China, the world's largest market with a booming economy.
But Merkel, who took office in 2005, has brought up human rights publicly during both of her trips to China as chancellor.
That contrasts with her predecessor, Gerhard Schroeder, who opponents accused of soft-pedaling the issue in the pursuit of economic ties.
"Questions of human rights regarding Tibet are an issue that we discuss again and again with the Chinese side - on one hand within the framework of the bilateral German-Chinese human rights dialogue, but also in EU-China human rights dialogues," Wilhelm said.
Holger Haibach, a lawmaker with Merkel's Christian Democrats, described the planned meeting as "an event of an almost historical dimension."
"The chancellor is sending a clear signal that we in Germany are not unmoved by the situation of the Tibetans, and that in the run-up to the Olympic Games in Beijing we are casting a watchful eye on human rights in Tibet and all of China," he said.
"We should use shock therapy to sober up the Americans. In this case, the Americans will speak about the need to resume dialogue. There is no other option"
The United States is concerned about the current crisis in the relations with Russia and suggests returning to reasonable policies to avoid a nuclear war