The event is one of the highlights of the snooker calendar, featuring an elite field of the world's top 16 players.
Ronnie O'Sullivan, Mark Selby, John Higgins and Ding Junhui have all won it in recent years.
"The Alexandra Palace is an absolutely fantastic venue, as we've found by staging the World Darts Championship there," said World Snooker chairman Barry Hearn.
"We've seen record ticket sales for the darts and I'm expecting to see the same for the snooker. When it's packed out, the atmosphere in the place is electric, and I can't wait to see snooker played under those conditions because that's what The Masters is all about.
Alexandra Palace managing director Rebecca Kane added: "We are so pleased that Ally Pally has been chosen as the new home for The Masters. Alexandra Palace has a strong heritage in bringing live entertainment to the fans from a unique setting overlooking the whole of London, making us the perfect venue for music and sport.
"2012 will be a big year for all those working at the Palace and we are proud and honoured that the year will start in such spectacular fashion with The Masters at Ally Pally."
The tournament will be televised by BBC Sport, Eurosport, and CCTV China, with a global reach of hundreds of millions.
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