A group called Tribute to Liberty will receive up to $1.5 million from the federal government to build a memorial on the lawn between the Library and Archives building and the Supreme Court.
Conservative cabinet ministers Jason Kenney and Chris Alexander made the announcement Friday at the site of the planned memorial.
It's expected the memorial will be finished late next year.
"This will be a place of common memory," Kenney said.
The announcement coincided with Black Ribbon Day, a day of remembrance for the victims of communism and Nazism in Europe.
A statement from Prime Minister Stephen Harper said the day serves a reminder of the importance of upholding democracy and freedom.
"Canada has long been a beacon of hope and freedom for those escaping tyranny and oppression," Harper said.
"Our country continues to be a land of promise for immigrants and refugees seeking peace, security, freedom, justice and respect."
Liberal Leader Justin Trudeau also released a statement to mark the occasion.
"On behalf of the Liberal Party of Canada and our parliamentary caucus, I stand with all those here in Canada and around the world as we solemnly reflect on the importance of this day."