The state government has rejected a proposal for the operators of the Spirit of Tasmania to run two new freight only ships.
The government has requested the state-owned ferry operator TT-Line prepare a business case for the refurbishment of its two existing ferries instead.
Premier Will Hodgman and Infrastructure Minister Rene Hidding are in Devonport this morning for the announcement.
In a joint statement, they said TT-Line will have a renewed focus on passengers and tourists as a result of the decision to refurbish the ships, expected to cost $10 million.
The state government has also pledged to drive down the average ferry fare by up to 20 per cent.
Tasmania's fresh food and seafood industries have been reassured freight services will not be disrupted during the upgrade process which will see Spirit One followed by Spirit Two taken out of service from 2015.
The government has also flagged extra day sailings between Devonport and Melbourne to increase passenger numbers.
The announcement comes less than a week after the departure of TT-Line chief executive officer Charles Griplas.