The review forms part of its national alcohol strategy - titled Safe, Sensible, Social - which outlines the government's next steps to tackle alcohol-fuelled crime and disorder, protect young people and deal with irresponsibly managed premises.
Results will be published in April 2008 and followed by a public consultation.
Home Office minister Vernon Coaker said: "We now recognise that there is a need to look at this and find out what people feel about it."
He said local authorities will continue to carry out test purchases and will be extra tough on retailers who fail to heed warnings about selling alcohol to under-18s.
All drinks retailers will also be expected to adopt the Challenge 21 scheme or an equivalent to prevent under-age sales of alcohol.
Individual areas across the country will also have their own alcohol strategies to encourage communities to work together to tackle problems caused by alcohol.
Coaker said: "The government recognises that promoting a sensible drinking culture is a job for the whole of society. Everyone has a personal responsibility to drink in a safe, sensible and social way."
A consultation will also be launched in November 2008 to find out if the current voluntary alcohol labelling scheme should be made law.