The first sods have been turned for the Te Puia/New Zealand Maori Arts and Crafts Institute transformation.
Prime Minister John Key has joined with elders in turning the first sods at the wananga precinct today.
The schools are due to open in early 2017 followed by the extended gallery spaces later next year.
The new cafe restaurant is forecast to be open for the 2017 summer season.
The location of the sod turning us the physical and spiritual centre of the new precinct - the courtyard, and it will also be the resting place for the Mauri (life force) of the building when it is completed.
Te Puia chairman Harry Burkhardt said it was "simply huge" to receive such a vote of support from the tourism growth partnership panel.
"This grant supports our goals of significantly enhancing our facilities, enabling visitors to gain a more in-depth understanding of Maori material culture and the important role it plays in Aotearoa New Zealand.
He said the development was the most significant onsite investment since the tourism and cultural development functions were formally joined in the 1960s under parliamentary legistlation.
Te Puia is set to get $2.5 million from the Tourism Growth Partnership fund for new facilities at the New Zealand Maori Arts and Crafts Institute - including the new bone, stone and pounamu carving school, a ta moko (Maori tattoo) studio and a taonga gallery.
The project is one of three to get funding, which has just been announced by Prime Minister John Key at Trenz.
Rotorua Daily Post revealed details of the major redevelopment on Wednesday. It is expected to cost between $17-$18 million.
Other projects to get funding through the Tourism Growth Partnership fund include Timber Trail Adventures Ltd for the development of an 80-bed lodge at the halfway point of the Timber Trail Cycleway at Piropiro in the Waikato well as $500,000 for the Queenstown Bungy.
It brings the total invested in projects by the Government to $14.6 million in 22 projects.
Mr Key has also announced the Government will invest an additional $20 million over four years to further support tourism across New Zealand.
It includes a new regional mid sized Tourism Facilities Fund to help communities with small infrastructure projects that enhance visitor experiences and help them cope with growing number of tourists and independent travellers like Freedom Campers. There will be $12 million allocated over four years.
Mr Key, who is also the Minister for Tourism, said tourism was a significant part of the economy and a major employer.
He said an extra $8 million of funding would go to Tourism New Zealand to target key growth markets over four years.
"We recognise that some of our smaller communities need extra facilities to deal with the increase in tourism numbers, and in particular manage Freedom Campers."
He said the Budget would include the new $12 million fund to help them fund some of the smaller infrastructure needs.
During his speech at Trenz Mr Key paid credit to Rotorua as one of New Zealand's "best-known and best-loved" tourist destinations.
"Rotorua was one of the first real tourist destinations in New Zealand and is still a must see for over a third of our international visitors."
He also highlighted the success of Crankworx, which Associate Tourism Minister Paula Bennett recently attended.
"Crankworx is an example of how business and local government can work together to deliver great outcomes for the region. And I'm very proud that the Government played a role, through our Tourism Growth Partnership and Major Events Fund."
Prime Minister John Key has arrived at Trenz in Rotorua.
Mr Key is in town today and is expected to make an important announcement regarding regional tourism.
Mr Key, who is also Minister of Tourism, is currently visiting New Zealand's largest tourism conference.
Yesterday Associate Minister of Tourism Paula Bennett visited Trenz, where she hinted at the announcement.