The drill will last 10 days and simulate "scenarios we'll be facing in the next confrontation with Hezbollah", a defence source said Monday, referring to the Iran-backed Shiite movement.
Military sources said tens of thousands of soldiers, including thousands of reserves, would take part.
Aircraft, boats and submarines would be deployed, and the army's canine unit would also participate, they said.
The army would set up two field hospitals and test unmanned trucks and helicopters to evacuate casualties.
Israel and the United States last month accused a UN peacekeeping mission of turning a blind eye to Hezbollah smuggling arms and amassing forces on Lebanon's southern border with Israel in preparation for war, after a conflict between both sides in 2006.
Preparations for the drill, however, have been ongoing for more than a year and a half, the sources said.
The last time the Israeli army held a drill of this volume was in 1998, when it simulated a war with the Syrian army for a week.
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