Pepperell made the shot on the par-3 ninth hole in Surrey.
The Englishman was one-under par before making the incredible eagle.
Playing alongside Luke Donald and Sam Horsfield, Pepperell watched with amazement as he holed the 172-yard tee shot.
Upon landing on the green, the ball popped up of the pin and then unbelievably spun into the hole.
The world No 50 then high-fived his competitors and caddies as he lapped up the sensational moment.
Speaking after the logic-defying shot, Pepperell told Sky Sports: “I thought it pitched in the hole.
“[Then it] shot up like it was going to go to the back of the green from where we were stood and then all of a sudden it disappeared.
“My eyes started to go a little bit so I wasn’t sure what had happened to be honest. What actually did happen!”
The ace also means a £20,000 cheque will be heading to charity.
Many Twitter users lauded the shot, shown live on Sky Sports.
Sunday Times chief sports writer David Walsh said: “Just checked on British Masters on TV and saw Eddie Pepperell make the most amazing hole-in-one anyone has ever made. You’ve got to see it!”
BBC News presenter Dan Walker tweeted: “Love this… almost 2 holes-in-one from Eddie Pepperell”.
Pepperell topped the leaderboard shortly after the shot, with the winner expected to land around £500,000.