Masvidal announced the long-anticipated matchup Thursday via social media. Additional sources confirmed to ESPN both sides have agreed to the fight. UFC 217 takes place at Madison Square Garden.
Thompson (13-2-1) is coming off a knee surgery that has sidelined him since March. He suffered a majority decision loss to Tyron Woodley in a 170-pound title fight at UFC 209 in Las Vegas.
Fighting out of Simpsonville, South Carolina, Thompson racked up seven consecutive wins before running into Woodley. They fought to a draw at UFC 205 last November in New York, before Woodley narrowly edged him in an immediate rematch.
Masvidal (32-12) suffered a split-decision loss to Demian Maia at UFC 211 in May. Before that, the South Florida native had won three consecutive bouts, including finishes over Donald Cerrone and Jake Ellenberger.
Had Masvidal won that bout, he probably would have challenged Woodley for the title. The 32-year-old trains out of American Top Team.