The seven million euro restoration of Killarney House will go ahead, ministers said.
Antiques will be displayed in refurbished rooms in the house and a visitor centre built.
Tourism Minister Leo Varadkar said the project will bring enormous economic and cultural benefits to the area.
"This will be a landmark tourist attraction which will create jobs, stimulate the local economy and boost the tourism industry in the region," he said.
Golf's Irish Open was held in Killarney this weekend.
Heritage Minister Jimmy Deenihan welcomed the development.
"Killarney House, which was acquired by the state in 1998 through the generosity of the McShain family, is a building of significant architectural and historic importance that requires a programme of sensitive repair and refurbishment and significant investment," he said.
"This capital investment means that in addition to restoration works, an interpretative centre for Killarney National Park can be developed in the premises, highlighting one of Ireland's most spectacular and ecologically important natural environments.
"The National Parks and Wildlife Service can be proud of the work that it has done in advancing this project."