The journalist, who hosts the broadcaster's flagship political programme, has signed up to appear in the one-off special, according to The Sun.
Peston, 60, has previously appeared as a guest host on comedy panel show Have I Got News for You and in 2017 made a cameo in a short film sequel to Love Actually for Red Nose Day.
Six famous faces will embark on a musical theatre masterclass before taking to the stage to perform a hit musical number in a bid to impress a virtual audience, as well as a panel of critics.
John Barrowman will return as the show's host, after featuring in 2019, with Elaine Paige heading up the panel, which will also feature Hamilton star Trevor Dion Nicholas and Les Miserables actress Samantha Barks.
The special, produced by Multistory Media, will also feature a performance from Barrowman and the panel in the show's opening number, it was previously reported.
The celebrities will be mentored by Paige and will receive training from expert choreographers and vocal coaches.
Their performance will be supported by a West End chorus line and each of the celebrities will be marked by the virtual audience and the critics, with both votes combined to determine who will be "top of the bill" and the 2021 All Star Musicals champion.
The 2019 version saw stars including Alan Titchmarsh, The Masked Singer host Joel Dommett, comedian London Hughes and Money Saving Expert boss Martin Lewis take to the stage.