The "ATP Cup" will kickstart the year on January 3 of that year in three Australian host cities, yet to be decided.
The move marks a return by the governing body of men's professional tennis to a team format for the first time since the World Team Cup which ran from 1978 until 2012 in the German city of Dusseldorf.
The tournament will lead into the Australian Open, the first grand slam of the season in Melbourne in late January.
The new tournament will feature 24 teams in six groups of four and there will be an incentive for the world's top players to feature with 750 ATP ranking points and prize money of 15 million US dollars awarded to the winners.
There will be up to five players per team with the match format consisting of two singles and one doubles match in best-of-three set contests.
Qualification for the tournament will be based on the highest ATP ranking of the number one singles player from each country.
Tennis Australia CEO, Craig Tiley said: "This is an amazing opportunity, in close collaboration with the players and the tour, to deliver a globally impactful event that further elevates the sport and the fan interest in it.
"We want to keep growing tennis, give the players an environment where they can perform to the best of their abilities and then ensure they are appropriately appreciated and rewarded.
"This event will help us all achieve that while connecting with new generations of tennis fans. It will provide a new source of inspiration for young athletes to choose our sport."
ATP President Chris Kermode said: "We know from our extensive discussions from the players that the ATP Cup will provide a great way for them to open their season.
"It provides highly-coveted ATP ranking points and clearly links to the Australian Open."
World No. 1 and President of the ATP Player Council, Novak Djokovic, said at Thursday's announcement in London: "It's going to be the best way to kick start the season. We don't have too many team events.
"Australia is a country that has a grand slam, that nurtures tennis tradition.
"More than 90 per cent of the time we're playing as individuals and we don't have too many team events. This is going to bring together a lot of nations and for me personally, it will be a very nice and proud moment to represent my country."
The ATP Cup finishes on January 12 and the 2020 Australian Open, originally scheduled for January 13, will be moved to the following week on January 20.
