Donald finished T5 at this year's edition at Woburn.
Luke Donald will host the 2016 British Masters at The Grove.
The seven-time European Tour winner takes over from fellow Englishman Ian Poulter as tournament host in Hertfordshire next year.
Donald finished T5 at this year’s edition after the tournament had been absent from the European Tour schedule for seven years.
WATCH: Luke Donald’s short game secrets
“Woburn was a tremendous venue and Ian did a brilliant job as the ambassador,” said Donald.
“The Grove is a parkland course, and it has some elevation changes. It is always presented in great condition.
“It has a really nice variety of some longer holes, and some driveable par fours,” he added.
The tournament will take place on October 13th and will be only the second time that the venue has hosted an event on the European Tour.
Barney Francis, Sky Sports’ managing director, said: “Everyone was delighted with the return of the British Masters with packed galleries, fantastic golf and the players behind our drive to attract new audiences.”
Donald was four shots off eventual winner Matt Fitzpatrick at this year’s tournament at Woburn.
He produced a stunning chip from off the green during the final round to the delight of the spectators, reminding them of his renowned short game prowess.
The 37-year-old hasn’t won on the European Tour since 2012, when he won the BMW PGA Championship. A year earlier he won three times on Tour, including another BMW PGA Championship title.
Keith Pelley, the European Tour’s new Chief Executive, said: “We are very fortunate to have a former world no.1 in Luke now to take on the baton at The Grove, which I am certain will be another magnificent venue for this prestigious tournament.”
Donald has finished in the top 10 on the European Tour three times this year, including his T5 finish at Woburn two weeks ago. He recorded a third place finish at the Nedbank Golf Challenge and T7 a the Scottish Open.