Pran will receive the award on May 3, which will also officially mark Indian cinema's 100th year.
Pran's son Sunil Sikand told PTI: "It is an amazing thing. We are happy and honoured." When asked whether the honour came too late for the veteran actor, Mr Sikand said, "I don't want to get into all these details. We are happy with the award. My father is watching the news on TV right now."
Pran appeared in blockbuster movies like Zanjeer and Don and was often higher paid than the male lead of the movie. He played both villainous as well as supporting characters.
Pran co-starred with Bollywood's biggest names including the trinity of black and white Bollywood - Dilip Kumar, Raj Kapoor and Dev Anand. He was instrumental in the rise of Amitabh Bachchan who he recommended for Zanjeer to director Prakash Mehra.
Pran retired in the '90s, appearing in just two films - Mrityudaata and Tere Mere Sapne. He received the Padma Bhushan in 2001 and has won four Filmfare Awards.
Pran has been in and out of hospital over the last few months. He last made a rare public appearance at friend and colleague Amitabh Bachchan's 70th birthday party in October, 2012.
Previous Dadasaheb Phalke awardees include Satyajit Ray, Dev Anand and Yash Chopra. Bengali actor Soumitra Chatterjee was last year's awardee.