The actor and comedian famously played an elf in the first and third Lord of the Rings before landing TV series Conchords with his partner Jemaine Clement.
Variety reports that McKenzie will be playing Lindir, an Elf of Rivendell, in the prequel to the fantasy films.
His character in the two earlier films, made up for the purposes of the play, acquired an internet following and was nicknamed 'Figwit' by fans.
Shooting has finally got under way in New Zealand after a number of delays due to helmer Peter Jackson's poor health and the Hollywood writers' strike.
Other confirmed members of the cast include Ian McKellen, Andy Serkis, Cate Blanchett, Elijah Wood and Martin Freeman as 'Bilbo Baggins'.
The first part of The Hobbit is scheduled for release next year, with the second part due to follow in 2013.