Rumours have been circulating about the part he will have in the movie, but this is the first confirmation Marvel Studios has given.
A screening of footage from the forthcoming sequel shown at San Diego Comic-Con International concluded with an image of Kingsley as the controversial villain.
He was seen sitting in a chair wearing the Mandarin's outfit and enchanted rings as he stroked his beard and cocked a gun.
Kingsley is expected to be playing a supporting role to the film's main villain Aldrich Killian (Guy Pearce).
There has long been speculation as to whether Iron Man's iconic Chinese foe would feature in the film adaptations.
The Robert Downey Jr-starring Iron Man 3 is scheduled for release on May 3, 2013.
Watch a featurette from Iron Man 2 below: