The announcement was made on Sunday before the final round of this year's tournament at Portstewart.
Keith Pelley, the European Tour's chief executive, said that the tournament's host Rory McIlroy had strongly endorsed the Inishowen peninsula venue.
"Rory absolutely loves Ballyliffin," said Pelley, who described the venue as "stunning".
"Some months ago, Rory and I spoke about the possibility of the Irish Open coming to Ballyliffin.
"I have worked with athletes for 25 years and have never seen anybody who is more giving of his time than Rory. Having his name associated with the tournament is something we are proud of, and we do not take it for granted."
The European Tour chief said that he played at Ballyliffin on Friday before checking out hotel accommodation in the area.
"It's a fantastic venue - 36 outstanding holes. Then I drove around the region and visited the hotels.
"The golf course is spectacular, but the support we will receive from the region will be similar to what we have received at Portstewart.
"Donegal will definitely put on a great show and support us in every possible way."
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Next year's Irish Open will be held from 5-8 July - two weeks before the Open at Carnoustie.
Ballyliffin's bid for the tournament was framed as a cross-border initiative with strong backing being provided by both the local councils from Donegal and Derry & Strabane.
The Donegal venue's Old Course staged the 2008 Irish Senior Open but next year's tournament will be staged on the 22-year-old Pat Ruddy-designed Glashedy links which will be lengthened to more than 7,400 yards for the event.
With Sport Ireland also confirming Irish Government backing for the tournament in 2019 and 2020, the event seems certain to be played in the Republic of Ireland over the next three years although Ballyliffin is only a 35-minute drive from the city of Londonderry.
Ballyliffin in County Donegal will host the Irish Open for the first time in 2018.