The Portugal forward has been training alone due to an Achilles problem suffered in Real's 2-1 UEFA Champions League win over Ludogorets on Wednesday.
However, according to Ancelotti, the Portugal forward is in peak condition and will be able to take the field on Sunday at the Santiago Bernabeu as Real seek a sixth consecutive victory in all competitions.
"Fabio Coentrao, Jese Rodriguez and Sami Khedira are the only ones who are not fit to play," Ancelotti said. "Cristiano is in excellent shape."
"We will play with a 4-3-3 formation. We have to fix a few things and be more balanced," he continued.
"[Bilbao boss] Ernesto Valverde is one of the best coaches in Spain. Athletic has a lot of character and quality. We have to be careful with them."
However, while Ancelotti admits the issue has become a worry for his team, he urged his players not to show fear.
He added: "Set-pieces worry us but we shouldn't be afraid."
