The 32-team tournament will be expanded to 54 for the 2016-17 campaign, with two sides from each of the Welsh Premier League and the Northern Ireland Football League, as well as those competing in the under-20 Ladbrokes Premiership, being invited to take part.
The current format sees the 30 teams from the Ladbrokes Championship, League One and League Two joined by a representative from both the Highland and Lowland Leagues. For next season, the Highland and Lowland leagues will each contribute four participants, who will join the first round in August alongside all 12 top flight under-20 teams and eight teams from League Two.
The rest of League Two and League One will enter in the second round, with the Championship teams joining in the third round and the Northern Irish and Welsh clubs being added in round four.
SPFL chief executive Neil Doncaster said: “We are also very pleased to be supported by Uefa in delivering an element of cross-border competition through the invitation to our colleagues in Northern Ireland and Wales which brings a completely new dimension to the Challenge Cup and the levels of excitement and interest in it.
“The introduction of Ladbrokes Premiership under-20 teams will give young players a taste of competitive football at senior level, while extending the number of Highland and Lowland League clubs taking part further strengthens the pyramid system.”
Football Association of Wales head of competitions Andrew Howard added: “We are confident that this new format will generate a great deal of interest from Welsh football fans.” Andrew Johnson, Northern Ireland Football League managing director, said: “I have no doubt that it will prove to be a success both on and off the pitch.”
Premier Sports and S4C will join BBC Alba in screening the competition.