The Manchester City striker's participation at the tournament looked to be in doubt after Prandelli had recently raised concerns over his antics both on and off the pitch.
However, Prandelli has now admitted that the 21-year-old will be part of his plans this summer.
"Have I made peace with Balotelli? Yes, although to be honest we never argued in the first place," Prandelli told RAI.
"I was pleased that he took responsibility with his statements after the latest incident at Manchester City. I like those who stand up and accept responsibility for their actions.
"I never really thought of doing this without Balotelli, as he is a focal point of the national team."
Balotelli has won seven caps at international level.