It was assembled by the Oamaru Lions Club in partnership with the aged-care facility.
Iona Home volunteer Annie Beattie hoped the new growing space would help make the special care unit more "home friendly".
It would give the residents a sense of autonomy in being able to go outside and work on something with their hands.
"It is to encourage the residents to come outside, get some fresh air, some exercise and do some potting up."
The tunnel house had been made possible via market days at Iona.
Iona lead dementia activities co-ordinator Michelle Munro said enabling residents to "continue their everyday living" was vital as far as possible.
Oamaru Lions Club treasurer Geoff Brown said the tunnel house was a very worthy for the club to back.
The club had previously built an aviary for Iona residents to enjoy, he said.
Ms Beattie said they now had a really nice outdoor space for the residents.
"We bring the residents out on a lovely day, sit outside and we’ve got a wee table, we can be potting up plants with them."
