Thomas, 31, will play the manager of a restaurant where Allen's character's daughter applies for a job, the Los Angeles Times reported Saturday.
The episode, titled "College Girl," is slotted to air this season, though an official date hasn't been announced, a spokeswoman for ABC said.
This is the second "Home Improvement" reunion on Allen's new comedy. Richard Karn, who played Allen's sidekick on the 90s show, was an architect hired to design Allen's character's outdoors stores. He'll be on the show again later this season in an episode titled "The Fight," the spokeswoman said.
Thomas, the one-time teen heartthrob during his "Home Improvement" days is keeping a relatively low profile these times, the Times reported.
"I've been going to school and traveling quite a bit, getting to read a lot of books I've wanted to for quite some time," he told EW in 2011. "I think at this point, I'd eventually like to work behind the camera. That's not to say I would never act again. I'm not quite sure, to be honest. I still have a passion for TV and film."