The project will link the North Goonyella and Newlands Rail systems, allowing central Queensland coal producers to rail coal to the Abbott Point terminal, 25km north of Bowen.
It will also mean coal from Newlands, near Mackay, could be railed to ports at Hay Point and Dalrymple Bay.
Queensland premier Peter Beattie said the project depended on the construction of the stage three expansion of Abbot Point Coal Terminal, which will allow coal mines operating in central Queensland to choose between Abbot Point and Dalrymple Bay as export ports.
Beattie said the choice was strategically important as rail and handling facilities at
Hay Point and Dalrymple Bay had approached maximum capacity.
"It will also allow coal to be blended to customer requirements, foster new mines and provide an emergency link should the North Coast Line ever become impassable,” he said.
The project will create up to 900 jobs during construction between 2007 and 2008.
A report on the environmental impact statement is due early next year.