It is the first Indian feature film to receive a nomination at the 95th Academy Awards, which take place in March, for a category other than best international film.
The song has become a favourite at award shows and has already received a Critics' Choice Award and a Golden Globe.
It will compete with superstars Lady Gaga and Rihanna, whose songs are nominated for Oscars in the same category.
The announcement was revealed by hosts Riz Ahmed and Allison Williams on Tuesday during the presentation of the nomination in Beverly Hills. The ceremony for this year will take place on March 12 in Los Angeles.
The last time an Indian won an Oscar for a piece of cinema music was in 2009, when composer AR Rahman won for the song Jai Ho from the British director Danny Boyle's Slumdog Millionaire. Rahman also won for best original song and best original score.
Numerous people have been bopping along to Naatu Naatu's beat. Fans of the song have been wishing for a win since it was included on the shortlist for the Oscars in December.
Fans expressed their wish for the movie to receive both an Oscar nomination and a win by using the hashtag #NTRforOscars on Twitter hours before the nominations were revealed.
They have high expectations because Naatu Naatu has been tabbed as the favourite to win this year's Oscar in a number of trade magazines.
The 45-second song was recorded in 2021 in front of Volodymyr Zelensky's official residence in Ukraine.
The film's major actors, Ram Charan and Jr. NTR, put on an exciting dance number that quickly became a social media craze both in India and around the world.
RRR director SS Rajamouli launched an extensive publicity campaign last year and submitted the movie for nominations in 14 categories, including best picture, best director, and best screenplay, after the movie was beaten out as India's official entry to the Oscars by the Gujarati-language movie Chello Show.
One of India's most expensive movies is a historical fantasy that depicts the fictional struggle of two real-life Indian revolutionaries against British rule.
Critics have given the movie rave reviews, and A-list Hollywood directors like Edgar Wright and James Gunn have also praised it.
After it won Best Foreign Language Film and Naatu Naatu won Best Song at the 28th Critics' Choice Awards, the song's composer, MM Keeravani, shared images with Oscar-winning filmmaker James Cameron at the ceremony and claimed that the latter had praised him for his score after seeing the movie twice.