Deputy Prime Minister and Federal Minister for Infrastructure, Transport and Regional Development Michael McCormack and Victorian Minister for Transport Infrastructure Jacinta Allan said almost 70,000 new sleepers were now being installed between Korong Vale and Sea Lake.
Mr McCormack said the project would keep rail freight moving efficiently for generations to come.
"In December last year, the Federal Government announced an additional $200.2 million for the Murray Basin Freight Rail Network, including $195.2 million for the most extensive package of works recommended by the revised business case undertaken by the Victorian Government," the Deputy Prime Minister said.
"I'm pleased that work has now started on this important 141-kilometre track, which services two major Victorian grain terminals.
"These works will improve safety and reliability along the line, with four level-crossing renewals and maintenance on more than 3,000 joints.
"This is just the start of a pipeline of shovel-ready works on this project that both governments will deliver.
"The Australian Government continues to roll out these types of major projects across the nation under our record $110 billion infrastructure investment which is laying the foundations for economic recovery as we recover from the global pandemic."
"Freight trains have returned to the Mildura and Murrayville to Ouyen lines, the Maryborough to Ararat line reopened after 15 years and we've seen significant upgrades to the Hopetoun, Manangatang and Yelta lines," Minister Allan said.
"We know how important the Murray Basin Rail Project is to Victorian primary producers - and we're excited to get on and deliver work ahead of the next grain season."
The Victorian Government undertook a review of the original Murray Basin Rail Project business case, prepared in 2015, backed by industry engagement from farmers and freight operators who wanted to see works commence as soon as possible.
Victorian Minister for Ports and Freight Melissa Horne said the project would move more freight onto rail as the state's primary production output grows - making it easier for Victorian farmers to get their products to market.
"We are committed to shifting more freight onto rail to support our exporters and ensure Victoria's freight and logistics system meets the needs of a growing population and economy," Ms Horne said.
Federal Member for Mallee Anne Webster said work would continue over the coming months to remove bottlenecks and improve the network's efficiency, replacing 23,000 sleepers between Inglewood and Korong Vale and nearly 28,000 new sleepers between Dunolly and Inglewood.
"I welcome the start of work with the Australian Government's additional investment in the Murray Basin Freight Rail Network," Dr Webster said.
"Since being elected as the Member for Mallee, I've heard first-hand from communities and industry that work must continue on this critical project.
"I remain committed to making sure this project delivers for these stakeholders and plans for the future of the network."
Federal Member for Wannon Dan Tehan said the works would deliver more freight paths and major improvements along the network.
"The revised scope of works prioritised and recommended by the Victorian Government will be delivered with an additional $195.2 million investment from the Australian Government and $48.8 million from the Victorian Government," Mr Tehan said.
"These improvements include replacing sleepers, adding passing loops, upgrading signalling and improving train sidings and refuelling facilities.
"The additional investment by the Australian Government brings our total commitment to the Murray Basin Freight Rail Network to more than $440 million since 2016 and together with the Victorian Government, total investment in the network to more than $800 million.
"The further works on the Murray Basin Freight Rail project is expected to support 1,000 direct and indirect jobs at a time when our communities need them most."
