The drill comes as a top clerical official renewed his threat to target "the heart of Tel Aviv" should Israel attack Iran.
The five-day drill will involve Iran's elite Revolutionary Guard and the regular army and will cover 230,000 square miles - or about 600,000 square kilometers - of central, western and southern Iran, said air force Gen. Ahmad Mighani.
As Iran has pressed forward with its nuclear program, Israel has repeatedly threatened military action to prevent Tehran from obtaining nuclear weapons. The U.S. also has not ruled out military action should diplomacy fail to resolve the dispute over Iran's nuclear activities.
Washington and its European allies suspect Iran aims to use a civilian nuclear program as cover to produce weapons, and Iran has effectively rejected a new U.N. proposal aimed at easing those concerns. Tehran denies any intention to make nuclear weapons and says it only wants to generate power.
The defense drill will involve an attack by airplanes representing a hypothetical enemy.
"Reconnaissance enemy planes will violate our air space and try to disrupt electronic and radar systems, identify sensitive facilities, take photos and ... attack air defense sites," Mighani said, according to a state TV report. "And our air defense system will confront the intruding planes."
A planned key component of Iran's air defenses, an anti-aircraft missile system from Russia, has yet to be delivered.
Mighani criticized Russia, saying the months-long delay in the S-300 missiles was apparently the result of Israeli pressure, not technical issues, as Moscow claims.
Israel and the United States have opposed the missile deal out of fear Iran could use the system to significantly boost defenses at its nuclear sites - including its main uranium enrichment plant at Natanz.
The representative of Iranian Supreme Leader Ayatollah Ali Khamenei to the Guard, warned Saturday that Iranian missiles will target Tel Aviv should an Israeli missile land in Iran.
"If the enemy want to test its bad luck and fire a missile into Iran, before the dust settles, Iran's ballistic missiles will target the heart of Tel Aviv," Mojtaba Zolnour told the official IRNA news agency.
Iran and Israel are archenemies and anti-Israeli stance is a trademark for the hardline Guard. Iranian President Mahmoud Ahmadinejad has since 2005 often predicted demise for the Jewish state.
Israeli military and government officials refused to comment on the planned war games.
Iran restructured its military this year in an effort to improve its air defenses. The changes were seen as part of a broader focus on bolstering the military by Tehran, which has been concerned about the U.S. military's presence in neighboring Iraq and Afghanistan as well as the Israeli threats to target its nuclear facilities.
Iran's Supreme Leader Ayatollah Ali Khamenei ordered a new branch to be split off from the air force this year to deal specifically with threats to the country's air space. Mighani was appointed to head the unit. The order rearranged the regular military into four branches - the ground force, the navy, the air force and the new air defense force.
Mighani now oversees radar, military intelligence gathering equipment and anti-aircraft missile units.