But the royal family is revered in Thailand and there are questions around whether any other candidate would want to challenge a member of the royal family.
What does this mean for Thai politics?
The March vote will be the first since Mr Prayuth took power in 2014, overthrowing the democratic government and ousting ex-Prime Minister Yingluck Shinawatra, the younger sister of Thaksin Shinawatra.
Both Mr Shinawatra and his sister currently live in self-imposed exile but still remain a powerful force in Thai politics, with many in the country remaining loyal to them.
The election is viewed as a battle between Mr Thaksin’s allies and the military, but the princess’ decision to run is likely to strike at the heart of the military’s strategy to remain a force in politics, according to the BBC’s Bangkok correspondent Jonathan Head.
In 2016, Thais voted to approve a new constitution created by the country’s military leaders, which was designed to perpetuate military influence and block Mr Thaksin’s allies from winning another election.
But now that the princess has aligned herself with a party allied with Mr Thaksin, all bets are off the table.
Thailand’s military has a history of intervening in politics and has seized power 12 times since the end of the absolute monarchy – and the introduction of the first constitution – in 1932.