Khan, 28, had been linked with potentially bigger fights against Adrien Broner and Keith Thurman, but opted to take on former kickboxer Algieri at welterweight.
British rival and IBF champion Kell Brook wanted to face Khan at Wembley on June 13.
But the Bolton fighter turned down the clash which could have earned the pair around £3m.
Algieri, 31, has lost just one fight but is relatively inexperienced with just 21 professional contests since changing sports in 2008.
His solitary defeat was a one-sided points loss to boxing star Manny Pacquiao who takes on Floyd Mayweather next on May 2.
The Filipino puncher had Algieri down six times during that bout in November.
Khan said: “He has only lost one fight, ranked number eight in the world.
“The last fight he lost was Pacquiao and that led Manny to go on to fight Floyd Mayweather.
“You can class him as an A-class fighter and he just fell short against Manny Pacquiao.
