The former Saltires skipper was originally left out of Grant Bradburn’s 15-man group for the competition, which Scotland are co-hosting.
Cricket Scotland bosses thought the Northamptonshire man wanted a break from national team duty while he concentrated on sealing a loan move to another county.
But they have now accepted there was a mix-up between the two parties and have called the 31-year-old in to replace Freddie Coleman, who has withdrawn from the squad due to “personal circumstances”.
Cricket Scotland said in a statement that they “wished to clarify the situation”.
They added: “The organisation initially believed it was acting in Kyle Coetzer’s best interest by not selecting him for the WT20Q and allowing him to concentrate on securing his future in county cricket.
“This was based on a number of conversations that were had with the player before the squad was submitted to Dubai last Friday, as to meet the ICC deadline requirements.
“Having since discussed this with the Kyle, he clearly believed that if he was unable to secure a county loan deal through July he would be included in the squad for the competition.
“Cricket Scotland has met with Kyle in the last 24 hours and clarified the situation. Both parties will now move forward and wish to state that there is no rift between the player and the organisation.”
Scotland will host the qualifying tournament’s Pool B, with Afghanistan, the United Arab Emirates, Holland, Canada, Kenya and Oman competing in a round-robin contest between July 9-18.
The top four teams will then go up against the best sides teams from Pool A – which is being staged in Ireland – to fight it out for the six final qualifying slots for next year’s T20 World Cup in India.