Corporal Dustin Berg, 21, is accused of killing Husain Kamil Hadi Dawud al-Dubaidi south of Baghdad in November 2003, then shooting himself.
Berg received a medal for wounds sustained in the incident.
The US army made the announcement on Friday.
An investigator testified during an Article 32 hearing last month that Berg changed his story a number of times before admitting he killed the police officer.
Special agent Clarence Joubert of the US Army Criminal Investigative Division said Berg initially said he was shot by a man in a red turban and white shirt.
Berg's attorney said at the hearing, which is similar to a civilian grand jury hearing, that his client acted in self-defence.
Major-General Terry Tucker, the commanding general at Fort Knox, determined that sufficient evidence exists for the case to move forward, public-affairs officer Connie Shaffery said.
A date for the court-martial has not been set.
Berg is charged with murder, false swearing and the wearing of an unauthorised award.
Berg received a medal during a ceremony in February 2004, the month he returned home from Iraq.