Construction of the expanded mental health unit at Port Macquarie Base Hospital is scheduled for completion in mid-2019.
The building work will start in January 2018.
The $17.5 million project will double the number of mental health beds to 24.
Parliamentary Secretary for Regional and Rural Health and Port Macquarie MP Leslie Williams said this was a substantial project with a substantial investment from the government.
The state government committed $15 million to the expansion project in 2015.
It is investing $2.5 million on top of that.
Mrs Williams said they wanted to make sure the project was the best it could be.
The MP said she looked forward to the project literally coming out of the ground.
Mrs Williams said the expanded mental health unit would meet the significant needs of the community across the demographics.
Health Infrastructure will head up the project as the delivery agent for NSW Health, while APP is the project manager.
AW Edwards has won the construction contract.
AW Edwards project manager Craig McIlveen said they were very excited to be involved in what would be a landmark project for the area.
Officials and guests gathered on December 18 for the sod turning.
Mid North Coast Local Health District chief executive Stewart Dowrick said the expanded unit would be a world-class facility that would future-proof the region for services over the next 10 to 20 years.
The project will include secure patient rooms with natural light, quiet spaces for relaxation, a multi-functional activity room, dedicated staff stations, secure landscaped courtyards and an interview room.
Staff, clinicians and consumers had input during the planning and design phase.