The Italian enjoyed a successful two-year spell with Los Blancos, which included leading the club to La Decima, however he was replaced by Rafael Benitez in 2015.
Ancelotti is now attempting to lead Bayern to the Champions League title and the club remain on course for a treble, with the Bundesliga crown and DFB-Pokkal both in sight.
Bayern will need to find a way past Real if they are to make the semi-finals after being drawn to face the Spanish giants in the last eight.
The 57-year-old insists he is delighted to take on the defending champions.
Ancelotti said: "The match against Real Madrid will be special for me. It is going to be exciting to play against them.
"We have a lot of confidence and want to win the Champions League this season.
"I think we have the ability to beat Real Madrid. But they have a fantastic team with a fantastic coach."