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Berlin Mayor Klaus Wowereit had urged the museum to carefully consider whether to include Hitler and, if it does, to ensure that he not be shown as a "cult figure."
In a statement, the museum said Hitler's rule "stands for an important, though also appalling, turning point in the development of modern Europe."
"To ignore Hitler's role in this era would allow a strange gap to develop in the German and Berlin history that we show from (19th century chancellor Otto von) Bismarck to the present day," the museum added, stressing that Madame Tussauds is "nonpolitical."
Madame Tussauds Berlin, which opens June 9, will feature many prominent Germans, including former Chancellor Helmut Kohl, current Chancellor Angela Merkel and scientist Albert Einstein — who left Germany shortly before Hitler took power in 1933, never to return.
The museum's statement Tuesday said market research showed that Hitler was among the figures both Berliners and tourists believe significantly marked German history, and visitors expect to find him at the new branch.
The museum said it would portray Hitler "with regard to possible sensitivities and far from any glorification," as he would have looked shortly before his 1945 suicide.
he likeness will be displayed behind glass, preventing visitors from having their pictures taken with it, and the exhibit will be constantly monitored by video cameras.