Angie Powell, 57, and her husband Rhodri, 56, uncovered the 20ft wide, six ft high, wall painting as they peeled back wallpaper and mortar from their grade II listed home.
The priceless picture, which shows the monarch sitting on his thrown wearing his crown and holding a sceptre, is thought to have been painted shortly after the house was built at the turn of the 15th century.
At the time it was the home of Thomas Cranmer, the Archdeacon of Taunton who went onto become the Archbishop of Canterbury and helped Henry break from the Catholic Church and set up the Church of England.
Though the artist is unknown, it is thought to be unique.
The only other known mural of the King, painted in the Palace of Whitehall, was destroyed when it burned down in the 16th century.
Michael Liversidge, former head of history of art department at Bristol University, said the discovery was "totally fascinating" and of "enormous importance and significance".
"It would have been an expression of loyalty," he said.
"Cranmer could have done it as a tribute to Henry and that would make it an object of great importance and significance. It is a unique image."
Mrs Powell and husband Rhodri have lived at the house near Taunton, Somerset, for about three years.
After the discovery, they brought in the experts who removed layers of plaster and mortar to clean up the image.
Mrs Powell, a children's author, said they discovered the mural while redecorating.
"When we saw the eyes appear out of the plaster it was a real moment," she said.
They had been removing wooden panels from the wall with a view to painting it.
"It is a presence and you do feel there's just something there behind you looking over your shoulder," she said.
"When people come in, he grabs the attention."
Ann Ballatyne, a conservator, said: "This is quite special. I've not seen anything like it and I've been working on wall paintings since 1966.
"I've not seen anything as magnificent as this."
Cranmer was chosen to be Archbishop of Canterbury in 1533 and immediately declared Henry's marriage to Catherine of Aragon void, and four months later married him to Anne Boleyn.
With Thomas Cromwell, he supported the translation of the bible into English.
In 1545, he wrote a litany that is still used in the church.
In 1549, he helped complete the book of common prayer.
After Edward VI's death, Cranmer supported Lady Jane Grey as successor.
Her nine-day reign was followed by the Roman Catholic Mary I, who tried him for treason.
After a long trial and imprisonment, he was forced to proclaim to the public his error in the support of Protestantism, an act designed to discourage followers of the religion.
Despite this, Cranmer was sentenced to be burned to death in Oxford on 21 March 1556.
He dramatically stuck his right hand, with which he had signed his recantation, into the fire first.