Alonso will miss the all-Madrid final against Atletico Madrid after picking up a booking in Tuesday's 4-0 win over Bayern Munich in the second leg of their semi-final.
It had been reported that Isco would step into central midfield, but Ancelotti has said that, injury permitting, Illarramendi will be in his XI for the final.
"The most natural is Illarramendi, because he has the capability, is used to playing in that position. If nothing changes in the meantime, the candidate for the position of Xabi Alonso is Illarramendi," Ancelotti told reporters at a press conference.
Los Blancos have not won the Champions League since 2002.