Crews have broken ground in a ceremony on land that will eventually become the relocated Lake St. Martin reserve.
The reserve, 250 kilometres north of Winnipeg, was flooded in 2011 and has been deemed virtually uninhabitable.
Some 2,000 people fled their homes during the flood — the majority from Lake St. Martin.
It has cost more than $100 million to provide them with food and shelter in temporary housing or hotels.
Draft figures suggest it will cost another $100 million to rebuild the Lake St. Martin reserve from scratch.
Federal Aboriginal Affairs Minister Bernard Valcourt said in a statement Monday that Ottawa is committed to work with the province and chiefs to return all evacuees home.
Manitoba Aboriginal Affairs Minister Eric Robinson called the groundbreaking "an important moment for the residents of Lake St. Martin."
He said he's optimistic construction can move quickly to "provide relief for the hundreds of evacuees who have lost their homes."
A Red Cross study found many of those forced from their reserves are on an "emotional roller-coaster" and are adjusting poorly to life in the city.
Aboriginal leaders say some have committed suicide out of despair, while others have been exposed to high-risk lifestyles in Winnipeg.