The 334 sq km attraction - about the same as Las Vegas - will offer cultural, sporting and entertainment activities - including a Six Flags park and a safari park.
The announcement boasts it will be the first of its kind in the world.
Building will begin early next year and the first stage finished by 2022.
It forms part of a wider master plan.
Saudi grooves to new beat as entertainment opens up
Vision 2030, announced by Deputy Crown Prince Mohammad Bin Salman a year ago, aims to diversify the economy and reduce the kingdom's reliance on oil, through a series of projects.
The entertainment city - about a fifth of the area of Riyadh in size - is the latest to be announced.
Authorities say the hope is it will not only attract visitors but "achieve a healthy and harmonious life, and provide more entertainment, joy and fun" for those who live in the capital.
However, it is unclear how something like a Six Flags will work in a country where women and men are largely segregated. Up until now, theme parks in Saudi Arabia have been largely aimed at children.
COMMENTS (1)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ