A new 5000-seat stadium for Melbourne Park will help make sure the Australian Open stays Down Under, Victorian Treasurer Tim Pallas says.
Work on the yet-to-be-named stadium will start in 2019 as part of a $271 million redevelopment of the sports precinct.
Mr Pallas said the budget commitment formed the latest part of a 2009 plan to upgrade Melbourne Park.
"It is a pretty good facility, but we want the best facility, not only in the nation but in the world," Mr Pallas told reporters on Sunday.
He said the new stadium would help ensure the Australian Open, which has been coveted by other cities internationally, stays in Melbourne.
"The players love these facilities. Importantly, I think Victorians have come to love these facilities," Mr Pallas said.
A record 728,000 fans poured through the gates at this year's Australian Open.
The stadium will be used for tennis, basketball, concerts and other sports.
The project will create 600 jobs during construction, and Sports Minister John Eren says the new arena will also support thousands of tourism and hospitality jobs.
Australian Open tournament director Craig Tilley said the upgrades since 2009 had driven employment growth.
"(Back) then we employed about 4500 in the month of January, today it's about 9500," he said.