Construction will begin soon and the restaurant is expected to open by the end of January.
A second building of similar design housing retail spaces, offices and a hospitality outlet on the adjoining site, now used as a car park, is planned for next year.
Nick Nilsen, who with his wife Neisha has owned the Princes St Lone Star for nine years, said it was "exciting" the business was finally relocating to a part of town with more foot traffic.
"We've been mulling it over for three years ... and finalising the design to make sure we get what we need.
"We will be right in the hub of the motels, the hospital, the university and now the stadium as well."
The new venue will have permanent seating for about 200 diners downstairs in a combination of indoor dining, a rear courtyard with a retractable roof, open courtyards and balconies facing George St, and smaller private dining areas seating up to 30 diners.
Upstairs will be a series of flexible areas able to be opened up to cater for up to 120 diners.
There will also be bars and a children's play room.
Mr Nilsen said the business had grown out of its Princes St building, opened in 1993.
The restaurant was extremely popular, serving up to 300 meals on busy nights and he expected the new location would serve 500-600 meals on a busy day at lunchtime and in the evenings.
"We're not changing what we do, we're just adding to it.
"We will be able to cater for more functions such as weddings, graduations and corporate dinners and we will be able to reduce our wait time when things are busy.
"It should be a good solution to all our problems," Mr Nilsen said.
He intended to hire six or seven additional full-time staff.
Mr Dippie said the two buildings would "fill in the gap" in the block between Albany and Frederick Sts.
He described the Lone Star building as "pretty stunning", saying it had been designed in keeping with the double gable villas prevalent in the area and would use a cladding of Dunedin bluestone and dark-coloured concrete panels.
"We wanted to do something really smart ... It is going to be a high-quality, polished facility."
In 2005, Mr Dippie was granted Dunedin City Council consent to demolish the Knox Row garden centre and replace it with a multistoreyed office building.
However, he said the economic downturn meant that project was no longer financially viable and it was decided to extend and redevelop the existing building instead.
Council consent for the amended project was granted earlier this year.
No vehicle access is proposed and there is no on-site parking.
The council's district plan does not require on-site parking spaces to be provided on commercial sites unless the site is being used for commercial residential use or is a large shop.
Mr Dippie declined to say how much the two building projects would cost.
