Peake will fly two "Astro Pi" maker-boards, which have been kitted with sensors, to the space station when he begins his six-month mission.
Primary and secondary school children will compete to develop an idea for an application, which if successful, will be developed with the help of the Astro Pi, CGI and Raspberry Pi Foundation, who will code their idea.
Peake will then load up the winning code whilst in orbit, set them running, collect the data generated and then download this to Earth where it will be distributed to the winning teams.
Business Secretary Vince Cable highlighted the importance of inspiring pupils to get involved with data science. He said: "So much technology relies on big data but not enough people are being trained in this field. This challenge helps the next generation to have fun whilst learning the skills that industry need."
Peake added: "I'm really excited about this project, born out of the cooperation among UK industries and institutions. There is huge scope for fun science and useful data gathering using the Astro Pi sensors on board the International Space Station."
ESERO-UK and Raspberry Pi are developing teaching resources to link to the curriculum and assist teachers of STEM subjects in engaging their students in the competition.
As well as explaining how to use and write code for the Astro Pi and its sensors, the resources will provide a context for the Astro Pi in the curriculum and link to teaching subjects and areas.