West Midlands Police said the review will be conducted by another force and will look at issues including lines of inquiry that may have been missed during the initial investigation.
Mr Passey, 24, was killed in a Stourbridge nightclub in August 2017.
Kobe Murray admitted stabbing him but was cleared of both murder and manslaughter by a jury the following February.
His family have been calling for a review into the case ever since, and say they have grown frustrated with WMP dragging its feet over a decision.
Family friend and spokesman Jason Connon, said: "This is a big step forward in our fight for justice for Ryan."
WMP said it was identifying a suitable force to conduct the review, which will also look at the communication between WMP and the Crown Prosecution Service, and the "sustainment of investigative effort".
The review was confirmed in a letter to Stourbridge MP Suzanne Webb from Deputy Chief Constable Vanessa Jardine, who apologised for the force's "delayed response".
Mrs Webb welcomed the review but said it was "concerning" that it had taken the police so long to announce it.
She said the "unnecessary and unfair delay" had left Mr Passey's family in limbo and added: "I first wrote to West Midlands Police in early 2020 asking for a review into the original investigation and it has taken this long to come to what many might think is an easy decision. That is disappointing.
"However, the force has finally acted and it should be given credit for doing so. I know the family will welcome this very positive development as do I.
"We need justice for Ryan. If this review helps the family get there then the wait will be worth it."
Following the jury's verdict West Midlands Police conducted its own review and found no issues with the case.
The conclusion of a separate civil case, in which the family are seeking a verdict of 'unlawful killing', is due to take place in November.