The 26-year-old lost to British star Murray in both the Queen's and Wimbledon finals last year but said he felt he should have won the former.
World number five Raonic will face a top class field as Murray, Rafael Nadal, US Open champion Stan Wawrinka and 2014 winner Grigor Dimitrov have all said they will play.
"Having reached the final of the Championships last year I really want to go one better this time," Raonic told the tournament website.
"At the same time I feel like, as well as Andy played in the final, it's one that got away from me and I want to try to put that right this year.
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"It is also a great way to be in the best shape on grass as Andy and I showed last year by reaching the Wimbledon final three weeks after Queen's last year."
Tournament Director Stephen Farrow said it was terrific Raonic, who lost to Murray for a third time in England last year in a thrilling semi-final in the ATP World Tour finals last November, would be back.
"We are delighted that he is going to be back with us this year to try to go one better.