This has lead to periodic algal blooms caused by a build-up of phosphorous, which often leaves the lake unsuitable for swimming.
The project is being run by Mana Tāhuna, a charitable trust based in Queenstown, and DoC has provided $4.45m for the work.
Over three years, the project will work with other community groups to plant natives and restore wetlands as well as control possums, rats and stoats and install sediment traps.
It is estimated that up to 25 people will be employed through the project.
Algal blooms have worsened since 2006, turning parts of the picturesque lake a reddy-copper colour.
The declining water quality is not just visual - it has led to fish kills and skin irritation for swimmers.