Organisers said on Wednesday that the Portuguese, whose uncle Pedro entered the event in 1982 when it was held in Africa rather than South America, will drive a Toyota Hilux with compatriot Ruben Faria.
Faria finished runner-up in the motorcycle category in 2013.
The Dakar starts in the Peruvian capital Lima on Jan. 6 and ends in Cordoba, Argentina, on Jan. 20 after passing through Bolivia.
Villas-Boas is currently the coach of Chinese side Shanghai SIPG. They have no fixtures in January after their season finished this month.
The official Dakar website said the Portuguese had initially contemplated entering the 40th edition of the Dakar on a motorbike to celebrate turning 40 but was "brought to his senses".
"I spoke with my friend Alex Doringer, the manager of the KTM team, who told me that I would still need a full year's preparation to get there and that it was better to consider doing it with a car," he said.
Villas-Boas moved to Shanghai a year ago, replacing former England manager Sven-Goran Eriksson. Media reports at the time suggested he was earning an annual salary of around $13.7 million.
The Portuguese, a keen motorbike and off-road rider since his teens, had previously coached Russian side Zenit St Petersburg. He won the Europa League with Porto in 2011.
"My passion for football makes me live it very intensively over 11 months and dedicate myself to that, but I think life allows you to enjoy other things," he said in 2013 when still at Tottenham.
"To compete in the Dakar Rally is a lifetime ambition for me and is something I know I have to do."
(Reporting by Alan Baldwin, editing by Toby Davis)
