It will examine what procedures and safeguards Police Scotland uses in relation to the practice.
The review was ordered by the Scottish government last year. It came after the UK government refused to extend a similar review in England and Wales.
The reviews follow numerous allegations across the UK that undercover police have abused their positions.
Justice Secretary Michael Matheson directed Her Majesty's Inspectorate of Constabulary in Scotland to investigate the actions of undercover officers.
This strategic review will be led by HM Chief Inspector of Constabulary in Scotland Derek Penman.
He said: "To maintain public confidence in policing, the tactics employed in undercover operations must be lawful, proportionate and necessary.
"They must also be subject to appropriate governance and oversight and police officers engaged in this specialist area of policing must comply with the law as well as the associated codes of practice."
He added: "Our report will provide assurance on whether undercover police operations are operating effectively and efficiently within Scotland, as well as assessing the contribution they make to public safety.
"In terms of safeguards, we will balance the requirement for visibility and transparency of undercover policing in Scotland with the need to protect sensitive covert policing techniques and operational deployments."
The terms of the review call for it to:
Victims of police spying had called for a Scottish inquiry to be set up.
Holyrood's parties had been united in calling for an extension to the Pitchford Inquiry, which was set up in England and Wales to investigate allegations of misconduct by undercover officers.
There are allegations that undercover Metropolitan Police officers had fathered children and caused miscarriages of justice, with claims of this activity extending to Scotland.
Mark Kennedy, one of five officers known to have had relationships with women while undercover, is alleged to have infiltrated environmental groups ahead of the G8 summit at Gleneagles in 2005.
The scope of an independent review of undercover policing in Scotland has been set out.