Magnussen, who will be played by Danish actor Lars Mikkelsen, is a new arrival in the show's third series and is based on the character Charles Augustus Milverton from the original Sir Arthur Conan Doyle stories.
Co-creator Mark Gatiss said: "Lars is a stunning actor and the nicest man. He's a delight to be around. He's brought something really interesting and new to the show.
"We've talked about doing Charles Augustus Milverton for quite some time. He's a proper big realised baddie. His original title was The Worst Man in London."
Moffat added: "He allowed us to move the character on. He's now Danish. Like everything in Sherlock, we take the original and move it around slightly. I think he's an outstanding villain. He will give you proper chills and make you shrivel at times."
Gatiss said that he was a very different prospect to Moriarty. "He is a man to whom power is second nature," said the writer. "He's not a baddie in his own mind."
Watch Steven Moffat and Mark Gatiss talking to Digital Spy about Sherlock series three:
Benedict Cumberbatch described the new character as the "archetypal bully".
"He is so measured and precise - he is like a shark, a terrifyingly perfect predator of our age," said Cumberbatch.
"His means and methods are chillingly everyday in our culture. He's a smart creation, very real and not fantastical.
"He's got a foreign perspective on the English culture which Holmes so perfectly personifies and the fact that he fights on the side of the angels. He sort of reduces what Holmes protects."
Watch Martin Freeman and Benedict Cumberbatch talking to Digital Spy about Sherlock series three:
[Sherlock series 3: Picture Gallery]