Ancelotti spent eight years as Milan boss from 2001 to 2009, having previously starred for the club as a player.
And the 55-year-old believes Tuesday's friendly clash could be a memorable encounter against ilippo Inzaghi's side.
"It is a warm-up game, both teams will be treating as such, but it will also be a great spectacle of football," he said. "The two teams with the most amount of European Cup titles face each other. It is good to be part of this event.
"It is going to be a very special match for me. I have a lot of history with Milan and I also have a great relationship with the Milan manager, who was one of my players.
"It will be a special day for me. It is an honour to play against them because I have very fond memories of the club."
Real are on a club record winning streak of 22 matches in all competitions - two short of equalling the world record held by Curitiba - and Ancelotti views the Milan friendly as preparation for his side's Liga clash with Valencia on January 4.
"All the players who have travelled are available," he added. "I'm not going to name the starting line-up but everyone will get a run out. Those left in Madrid are not available.
"This is a very important week in terms of preparation for the next game. We want to play well in this match in order to be prepared as best we can for the next one.
"We are fully focused on keeping this great run of form alive.
"We won't be killing the players physically this week because it is not necessary. They need to rest up.
"We are going to play this game as best we can and will then prepare for our trip to Valencia.
"We are delighted to be enjoying this streak of results and we want to keep it up."
