Manchester City is the second team announced for the three-team tournament to take place at the 100,000-capacity Melbourne Cricket Ground from July 18-24.
The third team for the series has yet to be confirmed, but reports have linked Italian Serie A side Inter Milan.
Owner Sheikh Mansour bin Zayed al-Nahyan has invested over £1 billion ($1.5 billion) since acquiring Manchester City in 2008.
Since Mansour’s arrival, City have won two Premier League titles, in 2012 and 2014, as well as the 2011 FA Cup and this year’s League Cup.
Manchester City also have a stake in Australia’s A-League after the club’s Abu Dhabi-based owners purchased and re-branded Melbourne Heart as Melbourne City early this year.
“We are looking forward, once again, to being a part of the tournament,” Ferran Soriano, chief executive of Manchester City, said in a statement.
“We are particularly excited to be visiting Melbourne, which is home to our sister club, Melbourne City.”
With the securing of Real Madrid and Manchester City’s huge box-office appeal, organisers are hoping to build on the local appetite for top European clubs after a crowd of 95,000 watched English Premier League Liverpool’s 2-0 win over Australia’s Melbourne Victory at the MCG last year.
Ten-time European champions Real Madrid were named FIFA’s Club of the 20th Century and are worth an estimated 500 million euros ($618 million).