The stalls will be in the form of wooden carts which will be made locally from locally sourced timber.
In the first year there will be 20 to 30 carts with more added in subsequent years.
The new market has the support of those involved in existing markets in Rotorua and interested stallholders are already lining up to be involved, a council press release stated.
Councillor Janet Wepa, who leads the council's Sustainable Living portfolio, said the market will have the support of individuals and community gardeners who have already established a local food network.
"It was something that came up during portfolio consultation last year with the people involved in the food network - which includes organic gardeners, groups involved with community gardeners and individuals," Mrs Wepa said.
"They saw a farmers' market as providing an opportunity to share their produce and skills with the wider community and contributing to increasing our community's sustainable living capabilities. I think it has the potential to be a great success," she said.
Inner City Revitalisation portfolio lead councillor Karen Hunt said the work to set up and run the market will be done as part of delivery of the inner city strategy.
"This new market, in its very central location, will really add something different to complement our other markets and add to the activity and vibrancy in the central city.
"I know it will have the support of some of our current night market stallholders who were asking for a different offering," she said.
The Rotorua Night Market on Thursdays, which has been going since 2010, has gone from strength to strength, becoming a popular weekly destination. It is largely a dining experience with stallholders who sell ready-to-eat food having the most success.
Meanwhile, Rotary's Saturday morning market, also a success and a popular weekly destination, offers a mix of fresh produce, crafts, secondhand goods and mainly cooked food.
Ms Hunt said she was confident the new market would work.
"The location is very visible with plenty of foot traffic and markets are a popular trend.
"Care has been taken to ensure this doesn't compete with any other local markets and I think it will provide additional interest for both locals and visitors."
No plastic bags will be used at the market and there will be a goal for the market to become waste-free.
Affordable stallholder fees will create an income for the market that will pay for the initial set-up and ongoing operating costs, with the initial costs coming out of the council's Inner City Revitalisation budget allocated in the Long-term Plan.