Melton Shire Council is funding the first stage of the project that is expected to be completed in the next two years.
The road will be duplicated and a school crossing near the Parkwood Green Primary School will also be installed.
Sugargum Ward councillor Justin Mammarella, who has lobbied for the works for the past two years, said it was great news for residents.
He said table drains along the road would be repaired and footpaths installed, making the road safer for pedestrians to use.
“I was alarmed when I was driving down Gourlay Rd one morning and I saw a mother trying to get across one of those spoondrains. She was pushing a pram while holding her child’s hand at the same time,” Cr Mammarella said.
“Not only was it an incredible hurdle to get through that ditch but it was also very dangerous to cross that road to get to the school with all that traffic.”
The project was originally earmarked to go ahead in the 2008-09 budget but the residents’ outcry pushed for it to go ahead sooner.
Sugargum Residents Committee secretary John Pergolis said he was happy to hear the news but said the upgrade should have occurred earlier.
Hillside resident Anil Kattula said the upgrade would have a positive impact on Hillside residents living north of Melton Highway, as it would relieve congestion.
“We’ll have access down to Caroline Springs, which is where as lot of the facilities are being developed,” Mr Kattula said.
