Dr Edward Daly, Bishop Emeritus of Derry, became known after he lifted the tissue whilst helping a fatally injured civil rights protester in January 1972.
Thirteen people were killed when British paratroopers opened fire on a group of demonstrators. The incident also left 14 people injured, one of whom died some months later.
The Bishop said "all hell was let loose" when the shooting started.
At the time Bishop Edward was a 39-year-old curare at St Eugene's Cathedral in Derry and joined the peaceful march when it passed by his church.
He was trying to take John "Jackie" Duddy, 17, to safety and led the way with the handkerchief in his hand to show he was peaceful.
An inquiry has since found all those killed by the soldiers were innocent.
The image was broadcast around the world and has been put on murals in Derry.
Dr Daly will be given the freedom of Derry in tribute to his contributions to the city and the Northern Ireland peace process.
The ceremony takes place in the Guildhall in Londonderry and will also recognise retired Church of Ireland Bishop Dr James Mehaffey.