The 31-year-old world road champion will ride the multi-discipline omnium event in Brazil, having convinced the British Cycling selectors he has a genuine medal chance.
His place on the team was in doubt when he finished sixth in the omnium at the track world championships in London in March, having been set a minimum target of a podium place.
Since then Cavendish has juggled track training with his 'day job' for Team Dimension Data with whom he won four stages at this month's Tour de France, taking his overall tally to 30, four behind the record of Belgian great Eddy Merckx.
"On a mental point of view I'm on a bit of a high from the Tour," Cavendish said in an interview on Cyclingnews.
"Not away in the clouds high and it's not like I'm going on a piss up for a week after the Tour de France but I know that the work I've put in is working.
"I know the work I've put in has been beneficial. What we've set out to do this year is played out. It gives you positive feelings for the next goals you have."
Cavendish rode the Madison event with Bradley Wiggins at the 2008 Olympics in Beijing but the duo flopped despite being favourites and briefly fell out.
At the London 2012 Olympics Cavendish took part in the road race and was again a favourite, only to languish in 29th place.
The six-discipline omnium poses tough challenges for Cavendish, particularly the 4,000m individual pursuit and 1km time trial which proved costly to his medal chances in London.
However, after a pulling out of the Tour early to concentrate on Rio, Cavendish is expected to challenge the likes of Colombia's double world champion Fernando Gaviria and Germany's Roger Kluge for gold.
He said the demands of the Tour will not have any detrimental effect on his Rio hopes.
"If I'd have been over the limit on the third day I'd have stopped on the third day," he explained.
"It's not easy (juggling road and track) but I've been managing that all year. This is about making every single pedal rev count," he added.
While selected for the omnium, Cavendish could also be an option in the men's team pursuit squad and a possible link-up again with Wiggins with whom he memorably won Madison gold at the worlds earlier this year.