The Canadian Consortium on Neurodegeneration in Aging will bring together 340 researchers who are part of 20 teams across Canada, said Health Minister Rona Ambrose.
Ambrose said the problem has dramatically increased over the years and will only get worse as the population ages.
"Dementia and dementia-related illnesses are only going to continue to increase to the point where they could very well overwhelm our health-care system when it comes to cost and care," she told reporters.
"We've got to get ahead of it, we've got to look at prevention and we've got to focus on ways to support caregivers who are taking care of people with dementia."
The government estimates 747,000 Canadians were living with Alzheimer's disease or other forms of dementia in 2011.
In two decades, it is estimated that 1.4 million Canadians will have dementia, costing the economy almost $300 billion per year.
The consortium, which will be headquartered at the Jewish General Hospital in Montreal, is receiving $31.5 million from Ottawa and several partners. Of that amount, $21.6 million will come from the federal Canadian Institutes of Health Research.
Other groups in Quebec and Ontario will provide an additional $24 million, including $19 million from the Ontario Brain Institute.
Ambrose will make another announcement on Thursday in Ottawa at the Canada-France Global Legacy Event, a two-day gathering of about 200 experts from G7 countries on dementia care and treatment, as well as ways of improving the lives of caregivers.