Construction on Branxholm's Water Treatment Reservoir has started.
The project is part of the Ringarooma Valley Water Scheme, which aims to deliver quality water to various townships in the region.
TasWater project manager Bashar Abuusba said water treatment facility would be significant for the area.
"The new reservoir will provide greater water security along with high-quality water to Branxholm customers," he said.
Vos Construction and Joinery has been contracted to build the reservoir, which will hold 500 kilolitres of water.
"The reservoir will lower the risk of interruptions should any outages occur on the water transfer pipeline from Ringarooma Water Treatment Plant," Mr Abuusha said.
"The Ringarooma Valley Water Scheme started back in 2014, delivering three reservoirs to three towns: Derby, Ringarooma and Branxholm.
"The Branxholm reservoir is the last piece of the puzzle."