Jenson will stand in for the Indy 500-bound Fernando.
Button, who turned 37 earlier this year, had announced a sabbatical at the end of 2016, his McLaren race seat taken by Stoffel Vandoorne.
But the 2009 champion will now get to return to the McLaren cockpit for a race, with Alonso opting to skip Monaco to contest the IndyCar series' blue-riband event.
Button won the Monaco Grand Prix back in 2009, and has two more podiums at the street circuit.
“I’m thrilled to be making a one-off return to Formula 1 racing, and I couldn’t think of a better place to make that return than my adopted home Grand Prix: Monaco," Button said.
“I’ve won the race before, in 2009, and it’s one of my all-time favourite racetracks. It’s a tricky street circuit on which a good driver can really make a difference – and, although the McLaren-Honda MCL32 hasn’t begun the season well, I think it may be more suited to Monaco than to the faster circuits that Fernando and Stoffel have raced it on so far this season.
“OK, I realise we won’t have a realistic chance of repeating my 2009 victory, but I think we’ll have a opportunity to score world championship points, which will be very valuable to the team in terms of constructors’ rankings."
Button, who is yet to drive the sport's higher-downforce and wider 2017 cars, will partner Vandoorne for a second time, having raced alongside the Belgian in the Bahrain GP last year, when the latter stood in for an injured Alonso.
He said: "I’ll drive the MCL32 around Monaco in the McLaren sim beforehand, and I reckon I’ll be ready for the race after doing that.
"I’m supremely fit, having done a lot of triathlon training recently, so I have no worries on that score."
When the lights go out for the 2017 Monaco Grand Prix, Button will equal seven-time F1 world champion Michael Schumacher on 306 starts, as second on the all-time list behind Rubens Barrichello.
Racing director Eric Boullier said: "I was truly delighted when Jenson accepted our suggestion that he race at Monaco instead of Fernando, and I know I speak on behalf of everyone at McLaren-Honda, and all our sponsor-partners and fans too, when I say that it’s great news for Jenson, for McLaren, for Honda, for our sponsor-partners, for Monaco, and for the sport of Formula 1.
“Jenson is a class act. He’s a superb driver – fast, smooth and precise – and he won’t have lost any of his competitive edge over the past few months."