The high-profile December 7 duel, dubbed 'Clash on the Dunes', will see Britain's Joshua trying to win back the IBF, WBA and WBO titles he sensationally lost to American fighter Ruiz in New York in June, AFP reported.
The bout will take place in Diriyah, which incorporates the UNESCO World Heritage site of Al-Turaif, on the outskirts of Riyadh – a dramatic contrast to the iconic Madison Square Garden which hosted the first fight.
Promoters Matchroom Boxing said the fight details will be officially revealed at a news conference in London on Monday.
The rematch had been widely touted but Cardiff's Principality Stadium was tipped as favorite to stage the event.
The Saudis have faced intense diplomatic fallout over the murder of dissident journalist Jamal Khashoggi which took place in the conservative kingdom's consulate in Istanbul in 2018.
Saudi rulers, also under fire for the war in neighboring Yemen, have utilized sport as a tool to try and soften their international image and to provide a showcase, they claim, for reforms inside the oil-rich state.
But Friday's announcement was quickly denounced by human rights campaigners.
"If Anthony Joshua fights Andy Ruiz Jr. in Saudi Arabia, it's likely to be yet another opportunity for the Saudi authorities to try to 'sportswash' their severely tarnished image," said Amnesty UK's head of campaigns Felix Jakens.
"Despite some long-overdue reforms on women's rights, Saudi Arabia is currently in the grip of a sweeping human rights crackdown – with women's rights activists, lawyers and members of the Shia minority community all being targeted.
"There's been no justice over the gruesome murder of Jamal Khashoggi, and the Saudi-led military coalition in Yemen is carrying out indiscriminate attacks on homes, hospitals and market-places with horrific consequences for Yemeni civilians."
Amnesty said Joshua should "inform himself of the human rights situation and be prepared to speak out about Saudi Arabia's abysmal human rights record."
In February this year, the Saudis hosted a first European Tour golf event which was won by former world number one Dustin Johnson while the world's most grueling motor sports race, the Dakar Rally, will be raced in the country in 2020.
In July, British boxer Amir Khan won the WBC international welterweight title with a fourth-round stoppage of Australian Billy Dib in Jeddah.
Khan said he did not regret agreeing to the trip despite Amnesty describing the Saudi human rights record as "abysmal."
Khan was reportedly paid £7 million to headline the event.