The Indian will replace the Italian driver Jarno Trulli, who is currently 19th in the drivers championship with two 13th place finishes in Australia and Monaco.
Chandhok was introduced to Formula One by the Hispania Racing Team in 2010 after some strong performances in GP2 and A1GP, and he finshed 22nd in the championship after two 14th place finishes.
He was replaced by Sakon Yamamoto and Christian Klien after the 2010 British Grand Prix, and finished ahead of them both in the championship.
After being left out of the Hispania team, he regularly appeared on race commentary for BBC Radio 5 Live and 5 Live Sports Extra, providing valuable insights into Formula One.
This season he was signed as one of Team Lotus' four test drivers, with Luiz Razia, Davide Valsecci and Ricardo Teixeira. He has competed in four practice sessions with the team in Australia, Turkey, Valencia and Britain, finishing behind his teammate every time.
Team Lotus have said that it is an opportunity for the Indian driver to prove himself, and Jarno Trulli will be racing in the car again a week later at the Hungarian Grand Prix.
It is also likely that Chandhok will compete in the inaugural Indian Grand Prix later this season, meaning that there would be two Indian drivers on the grid.
Trulli stated that he was "looking forward to working with Karun this weekend" and would try "to help him get the most out of his opportunity in Germany."
It was also revealed that Trulli is in talks with Team Lotus as they attempt to negotiate a contract extension that would see him racing in the 2012 season.