Manuel Pellegrini's outfit are an intimidating proposition having triumphed 3-2 away at Champions League holders Bayern Munich and taken apart Barclays Premier League leaders Arsenal 6-3 in the past week.
But Pearson wants his Foxes outfit, currently third in the Sky Bet Championship, to go out there and show what they can do.
"We shouldn't have fear playing against them," he said. "You've clearly got to respect the fact that going into this game we won't be favourites, let's put it like that.
"When a side like Man City beats the league leaders at the weekend then one or two people might be thinking it's a foregone conclusion.
"We've got to go out there on Tuesday night and make sure it's a proper cup tie. And in cup ties anything can happen.
"But whatever team they start with, it'll be very, very strong. They've proved that with how they've rotated for cup competitions and league fixtures, they've got plenty of depth in their squad.
"We've got to go into the game with a positive mindset about ourselves and try to make sure our game is as good as it can be."
Leicester, who last reached the semi-finals when winning the competition in 2000, realised their potential in the last round as they knocked out Fulham 4-3 in a thrilling encounter.
And it is hoped the visit of another Premier League opponent in the shape of Manchester City will become more of a regular occurrence next season as the club chase a return to England's top flight for the first time in 10 years.
"We'd love to be in that position but I think we're a long way off that at the moment," Pearson said.
"Those are our aspirations. For us as a club, the elusive Premier League status is the driving force for all of us. We want to try and get back into the Premier League so the league remains the most important competition for us.
"But, having said that, as a player, cup competitions are great to play in and the big ties really are things you look forward to. You should never go into these games with anything other than a positive feel about how you want to do yourself. Simple as that."