The review, to be led by Tom Hughes-Hallet, chief executive of charity Marie Curie Cancer Care, will examine how government can ensure money for palliative care is spent appropriately.
It will recommend a funding system to cover care provided by the NHS, a hospice or any appropriate provider, the DoH said.
Health secretary Andrew Lansley said: ‘This review will look at how we better deploy the money we spend on palliative care – so those in need are better supported.
'We intend that whatever care patients choose will meet their needs and wishes.’
Mr Hughes-Hallett said: ‘We need a funding system which is fair and encourages the provision of the right services to patients and families where and when they want them. It must also be fair to the full range of providers.’
The Alzheimer's Society welcomed the review. Acting chief executive Ruth Sutherland said: 'It is vital that the needs of people with dementia are at the heart of the review, and essential that funds are fairly allocated to allow them to receive high quality care at the end of their lives.'
She added: ‘It is very positive that the review is focused on enabling people to make choices about the end-of-life care they receive. For people with dementia, the opportunity to discuss end-of-life care should be provided at an early stage of their illness, so they can contribute to decisions around their future care and treatment.’
The review is due to report back by summer 2011.