"I've only played in Sydney once before and I really enjoyed the conditions there, and the beautiful city," the 24-year-old Spaniard said in a statement.
"This wildcard is a very valuable opportunity for me get back on the court and hopefully play a few more matches before the first Grand Slam of the year in Melbourne.
"The Sydney draw is incredibly strong and there will be no easy matches."
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The tournament, which begins at Sydney Olympic Park on Sunday, will feature three of the four current women's grand slam holders as Muguruza will be joined by US Open champion Sloane Stephens and Roland Garros winner Jelena Ostapenko.
The field also include seven-time grand slam winner Venus Williams, two-time Wimbledon champion Petra Kvitova, 2016 Australian and US Open champion Angelique Kerber and Australia's 2011 US Open champion Sam Stosur.
The opening grand slam of the season takes place at Melbourne Park from Jan. 15-28.
(Reporting by Hardik Vyas in Bengaluru; editing by Amlan Chakraborty)
