The Government has pledged €370m for the construction of the Luas link-up line in Dublin city centre.
Minister for Transport Leo Varadkar said Cabinet approval was secured for a revised business plan and work will begin in May next year.
He said the project is likely to generate up to 800 jobs during the construction phase with a further 60 permanent jobs.
Funding was included in the Government's capital expenditure plan and An Bord Pleanála gave planning approval last August.
Mr Varadkar said he will now ask the National Transport Authority and the Railway Procurement Agency to prepare for work to start next May with the main construction works starting in 2015 and the line completed in 2017.
"The two Luas lines should have been joined up years ago. It's a privilege for me as Minister for Transport to be able to finish the job," he said.
There will be traffic restrictions during construction and permanent changes are likely, such as Dawson Street being closed to car traffic and different traffic flows around St Stephen's Green.
Tom Coffey, of the Dublin City Business Association, said his members want disruption to be contained in "one big bang" of construction, rather than a rolling series of road closures in the city centre.