The three-day International Indian Film Academy (IIFA) event from June 3-5 will feature premieres, celebrity parties, fashion shows and a Twenty20 cricket match.
It will culminate in the glittering 11th annual awards ceremony in Colombo's biggest sports stadium, which organisers say will be attended by 500 guests and watched by 600 million TV viewers in 110 nations.
"This is a very rare and wonderful opportunity for Sri Lanka. Thanks to the prevailing peace, Sri Lanka has received international recognition," Duleep Mudadeniya, who heads the tourism bureau, told reporters.
Celebrities expected to attend include famous Indian acting dynasty the Bachchans -- father Amitabh, son Abhishek and his wife, former Miss World Aishwarya Rai.
IIFA brand ambassador Amitabh Bachchan said he hoped the decision to bring the event to Colombo -- which comes after the end of the island's long civil war last year -- would encourage collaboration.
The awards, first staged in 2000, are held outside India every year in an effort to increase the international profile of Bollywood films.
After the first IIFA awards in London, Hindi cinema ticket sales grew 35 percent in Britain over the following six months, organisers said. Other sites have included Macau, Johannesburg and Amsterdam.
Bachchan said previous cities that hosted the event had since become popular sites for Indian films.
"The potential to film in this part of the world (Sri Lanka) remains untapped, and this could change after IIFA," Bachchan said.
India's production houses churn out about 1,000 new releases a year for enormous audience at home. Nearly half of the new movies are shot abroad.
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