The Shand building was opened as the school’s science building in 1914 but, by 1971, was included in a Ministry of Works "hit list" of buildings not up to seismic standards.
School authorities said the building had been deteriorating more recently but worries about possible demolition were ended by the ministry funding.
Dunedin North MP David Clark announced the funding, to include earthquake strengthening, at a school gathering yesterday.
School rector Richard Hall said school old boys had clearly wanted the building saved.
" It will be one of the most significant learning developments at this school in the last 20 years here."
Physical work was likely to begin by about October next year, and the redevelopment could take about three to six months.
Larger learning spaces will be provided on the first floor, and at the eastern side of the building, a raised stage area and sizeable seating area will also be created.
The building was named after University of Otago professor John Shand to acknowledge his long service to education in Otago.