Earlier, the well-fancied Straw Bear was easily beaten by fellow Irish challenger Jazz Messenger in the Christmas Hurdle.
Paddy Power Gold Cup winner Exotic Dancer and the 2005 King George runner-up Monkerhostin are among other contenders.
Ridden by Grand National-winning jockey Niall 'Slippers' Madden, the 10-1 shot, trained by Noel Meade, is the third Irish-trained winner in a row in the race after Feathard Lady last year and Harchibald in 2004.
The pace-setter Afsoun came to grief fell four fences from home leaving Jazz Messenger in the lead.
David Pipe is double-handed with outsiders Commercial Flyer and Puntal, while Ollie Magern returns to the scene of his Feltham Novices' Chase victory of 2004 and Peter Bowen saddles Ballycassidy.
Straw Bear, ridden by Tony McCoy, challenged on the turn for home but never looked like getting past the leader.
It will be the first running of the three-mile race since the death of four-time King George winner Dessert Orchid.
Noble Request also came through to challenge but Jazz Messenger held on for victory.
Racegoers will pay tribute to the popular horse, who died last month aged 27, on the following day when the Desert Orchid Chase will be run in his honour.
Meanwhile, Ungaro claimed a comfortable win under Mick Fitzgerald in the Feltham Novices Chase to give the jockey his third win in the race.
Kauto Star has already earned comparisons with the great grey for his stylish jumping and versatility.
Although Fitzgerald's mount made a number of errors during the race, he recovered well in the latter stages and they safely jumped the last to run clear of Boychuk.
Earlier in his career, Kauto Star had been campaigned as a two-mile chaser, and fell when favourite for the Queen Mother Champion Chase at Cheltenham over that trip in March.
The well fancied Yes Sir was a big disappointment
But Nicholls has gradually stepped the French-bred gelding up in distance and he looked to have few stamina worries when winning the Betfair Chase at Haydock over three miles.
RECENT KING GEORGE WINNERS 2005: Kicking King2004: Kicking King2003: Edredon Bleu2002: Best Mate2001: Florida Pearl2000: First Gold That was the first leg of the £1m treble, a 17-length victory over Beef or Salmon which Nicholls described as "awesome."
King George VI Chase1. Kauto Star (R Walsh) 8-13 Fav 2. Exotic Dancer (A P McCoy) 9-1 3. Racing Demon (T J Murphy) 7-1 9 ran
Branded 'The Extra-Terrestrial' by his French former trainer Serge Foucher, Kauto Star remains relatively lightly-raced.
Christmas Hurdle1. Jazz Messenger (N P Madden) 10-1 2. Noble Request (R Johnson) 7-1 3. Desert Quest (R Walsh) 8-1 7 ran
Owner Clive Smith, a 64-year-old businessman from Surrey, hopes his horse can become a long-standing favourite with racegoers.
Feltham Novices Chase1. Ungaro (M A Fitzgerald) 14-1 2. Boychuk (R Johnson) 5-1 3. Knowhere (Tony Evans) 5-1 6 ran
"It's a great thrill to have such a good horse and I just hope he can keep on going, not just for Boxing Day but for the next few years," he said.
Nicholls last won the King George with See More Business, who landed the race for the second time in 1999 before going on to win the Gold Cup.
But the trainer believes his charge has the class to justify his odds-on price.
"He worked nicely on Saturday and we're very happy with him," said Nicholls.
"Of course when you saddle a short-priced favourite in a race like this, there's pressure but it is a nice pressure to have, if you know what I mean, and I'm confident he's in good order
The King George is returning to Kempton after being run at Sandown in 2005 while the Sunbury track was being redeveloped.
It is traditionally the showpiece event of a busy Christmas racing calendar and previous winners have included Gold Cup hat-trick heroes Arkle and Best Mate.
Stan James King George VI Chase 1420 GMT, Kempton, Boxing Day (Commentary on BBC Five Live)Betting: 4-7 Kauto Star, 9-2 Monet's Garden, 11-2 Racing Demon, 12 Exotic Dancer, 14 Monkerhostin, 33 Ollie Magern, 40 Commercial Flyer, 250 Puntal, Ballycassidy. (Source: William Hill - 23 Dec)
