Producer and director Peter Jackson confirmed that the actor, comedian and QI host will play The Master of Laketown in his two-part adaptation of the J.R.R. Tolkien novel.
Writing on his official Facebook page, he said: "We are thrilled to confirm that Stephen Fry will be playing The Master of Laketown.
"I've known Stephen for several years, and we're developing a Dambusters movie together. In addition to his writing skills, he's a terrific actor and will create a very memorable Master for us."
Fry's character is the elected leader of Esgaroth and is described as capable, but greedy.
Newcomer Ryan Gage, who has made guest appearances in Hollyoaks, Doctors and Holby City, has been cast as Alfrid, the Mayor's civil servant.
Describing Alfrid as a "conniving" character, Jackson added: "Ryan is a great young actor who we originally cast in a small role, but we liked him so much, we promoted him to the much larger Alfrid part."
Conan Stevens, a former professional wrestler, has also joined the cast to play an orc named Azog.
Sir Ian McKellen recently confirmed that Hugo Weaving will reprise the role of Elrond from the Lord of the Rings trilogy in the films.
The first of the Hobbit movies is slated for release in December 2012.
> In Pictures: Meet The Hobbit's cast