Dairy bosses say upgrading their existing factory to make it capable of producing 7,000 tonnes of cheese a year will bring 100 new jobs to Anglesey.
The £20m boost to the Mona Island Dairy Factory will also make it one of the most sustainable dairy plants in Europe, only running on renewable electricity, its owners say.
The funding will support production of Welsh and continental cheeses at the 25,000 sq ft plant in Holyhead.
The work will be finished by September.
Cheddar, Gouda and Edam will be among the cheeses to be made.
About £3m of the cost will come from a grant from the Welsh Government's Business Innovation and Tourism Escalator Scheme.