Spot checks will be carried out at shops to check that outfits on sale are meeting current safety standards.
The review will also consider whether there is a case for tightening the regulations.
Ms Winkleman has campaigned on the issue after he eight -year-old daughter Matilda suffered serious burns when a costume she was wearing caught fire.
Parents will spend thousands of pounds on fancy dress costumes over the coming weeks in the run-up to Halloween.
Business Secretary Sajid Javid said: “My immediate concern as a father and a minister is that children wearing these fancy dress costumes are safe.
“It is unacceptable for any costumes to be sold that do not comply with safety standards. That’s why I’ve granted funding to Trading Standards to carry out spot checks as part of a nationwide investigation.
“Parents should feel confident that any fancy dress they buy meets required standards.”
The British Standards Institute will work with trading standards officers to see if there is a case for tightening European standards.
The Children’s Burns Trust will also lead a fire safety campaign.
Leon Livermore, chief executive at the Chartered Trading Standards Institute, said: “CTSI takes issues of product safety very seriously, and hopes the evidence gathered as part of this investigation will help to establish whether the current flammability standards are still fit for purpose.”