Bracewell has replaced England all-rounder Will Jacks in the Bangalore squad. Jacks has been sidelined by injury sustained during England's recent tour of Bangladesh.
"Michael's been a key contributor to our white-ball teams since making his debut last year," said New Zealand head coach Gary Stead.
"It's exciting he'll get a chance to take up the learning opportunities the IPL provides - particularly as a spin bowling all-rounder.
"With a World Cup in India this year it's great to have players getting more experience in those conditions."
Bracewell has played 11 Tests, 19 ODIs and 16 T20Is since debuting in international cricket in 2022. He struck 140 in an ODI against India in Hyderabad earlier this year.
Bangalore remain in pursuit of a maiden IPL title. The Mumbai Indians are the most successful team in the history of the tournament, which started in 2008, when the Rajasthan Royals won the maiden title.
The Gujarat Titans are the reigning champions. The 2023 IPL is scheduled to start in late March.