The pain around building a new M5 tunnel and paying tolls will be worth it for Sydney motorists, NSW Premier Mike Baird says.
A planning application has been lodged for the six-lane underground motorway as part of the second stage of the WestConnex project.
Mr Baird and Prime Minister Tony Abbott made the announcement on Tuesday.
The new higher and wider tunnel will more than double the capacity of the often-congested M5 East and will run from Beverly Hills to St Peters in Sydney's inner west.
Three consortiums have been shortlisted to develop the 9km tunnel, with the preferred design and contractor to be selected by mid-2015.
The project is set for completion in 2019.
"When you deliver infrastructure such as this, obviously there will come inconvenience as part of it," Mr Baird told reporters in Sydney.
"But there is short-term pain for long-term gain, and that's what we're about - we're about future-proofing this city."
NSW Roads Minister Duncan Gay said the present infrastructure was "just crappy" and he was confident the expansion would ease congestion on the struggling M5 East.
The federal government is contributing $1.5 billion, plus a $2 billion concessional loan to help fast-track construction. The NSW government is paying $1.8 billion.
Motorists will pay for the rest via tolls on the new road and existing M5 East.
The prices will be distance-based like the M7.
"It will be capped. It will be fair. It will be equitable," Mr Baird said.
The prime minister said the project would help make Sydney a more liveable city.
"Yes, there's always a bit of inconvenience ... yes, there will be tolls," Mr Abbott said.
"But if you're paying for something extra, something which is undoubtedly better for you and your city, it's something that you're prepared to invest in for a better future."
Owners of about 80 houses around St Peters were told on Tuesday their properties would be affected by construction of the interchange.