The project, announced by Victorian Premier Daniel Andrews and Roads Minister Luke Donnellan, will add an additional lane in each direction between the EastLink interchange and South Gippsland Freeway, turning the Monash into a 10-lane highway.
It will also widen the Monash Freeway from two to three lanes between the South Gippsland Freeway exit and Clyde Rd in Berwick, making way for an extra 2000 vehicles during peak times.
Mr Andrews said the changes - which include a technological upgrade to 18 on-ramps to better manage traffic flow - will make the Monash a safer highway.
"This is a critically important upgrade that will cut travel times and reduce accidents by 20 per cent," he told reporters.
The project is expected to cause significant disruption during the construction phase, which is set to begin in 2017 following the tender process next year.
The Victorian government will be seeking "an equal partnership" with the Commonwealth with regards to funding, Mr Andrews said.
"Perhaps an allocation out of that $1.5 billion we retained in our budget," he said.
The Monash Freeway upgrade is linked to the $5.5 billion Western Distributor road project, which is still under negotiations with company Transurban.
The company proposed to pay two-thirds of the project costs, which would see Melbourne get a second river crossing, with a tunnel and elevated road connecting the West Gate Freeway to CityLink, the CBD and the Port of Melbourne.
However, the premier confirmed that the Monash upgrade would proceed even if the Western Distributor project does not.