The federal and provincial governments, along with the Capital Regional District, say they will share the costs of the project, which has a price tag of $782 million.
The project will include the treatment plant, upgrades to sewer mains, and a biosolids energy centre in which sewage products can be used to help produce electricity.
The energy plant will be run as a public-private partnership.
The governments say the new sewage treatment system will bring the Victoria region in line with environmental standards.
Environmentalists have been criticizing the region for years for dumping untreated sewage into the ocean.