The Spaniard lapped the tight and twisty street circuit in one minute 16.712 seconds with Honda test driver Anthony Davidson, who will not race on Sunday, second fastest in 1:16.872.
McLaren's Kimi Raikkonen, last year's race winner and hoping to celebrate the 40th anniversary of his team's debut with another victory, was at the other end of the timesheets.
The Finn did not venture out until the end of the session but parked up at the exit to the swimming pool complex after his car let out a cloud of smoke as he powered through the tunnel.
A marshal fired foam from an extinguisher over the rear of the car and mechanics pushed the McLaren back to the pits as Raikkonen strode off.
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The team said a heat shield on the left side of the car's exhaust system had caught fire, damaging wiring looms which then shut down the engine.
Colombian team mate Juan Pablo Montoya, another previous Monaco winner, was fifth fastest.
RENAULT STRONG
The session was otherwise uneventful, with Renault looking strong contenders yet again.
Alonso's team mate Giancarlo Fisichella was third fastest with Ferrari's seven times champion Michael Schumacher in fourth place on the timesheets.
Schumacher can equal the late Brazilian Ayrton Senna's record of six Monaco wins on Sunday and has been sounding confident again as his team emerge from their deeply disappointing 2005 campaign.
"Certainly it will be much easier for us here this year compared to last year, because last year it was clear we were not competitive," the German said.
"This year I think we have a good chance."
Alonso has won three of the six races so far, with Schumacher taking two and Fisichella the other, and leads the Ferrari driver by 15 points.
The Spaniard has, however, yet to stand on the Monaco podium after four attempts and admits that the race is not one of his favourites even if it is a special one that he yearns to win after his home triumph in Spain this month.