Sir Salman is the author of 22 works of fiction and non-fiction and won the Booker Prize for Midnight's Children.
He was also shortlisted for The Satanic Verses and Quichotte.
The 77-year-old previously spent several years in hiding after the 1988 publication of The Satanic Verses - a fictional story inspired by the life of the Muslim Prophet Muhammad - triggered threats against his life.
It was banned in India, Pakistan and South Africa and prompted then Iranian leader Ayatollah Ruhollah Khomeini to issue a decree calling for Sir Salman's death in 1989.
More than 35 years after the release of Sir Salman's novel, he was attacked multiple times on a New York lecture stage in August 2022.
He was left with severe injuries including damage to his liver, vision loss in one eye and a paralysed hand caused by nerve damage to his arm.
The attacker, Hadi Matar, 27, was convicted of attempted murder and assault and faces a sentence of more than 30 years in prison.
Speaking two years after the attack in 2024, Sir Salman said his eye was left hanging down his face "like a soft-boiled egg", and that losing it upsets him "every day".
"I remember thinking I was dying," he said.
"Fortunately, I was wrong."
Sir Salman said he used his new book, Knife, as a way of fighting back against what happened.
About 150,000 people visit Hay-on-Wye for the arts and literature event each spring and this year marks the 38th spring edition of the festival.
With more than 600 events from 22 May to 1 June, Sir Stephen Fry, Hay Festival president, described the event as a "carnival of ideas".
Hay Festival global chief executive Julie Finch, said organisers are honoured to welcome Sir Salman back in person.
She said: "In a very special event, we'll explore his recent work and the power of storytelling to change the world.
"We know how much this appearance will mean."
