Five new 23-seater buses are now operating between Queenstown and outlying residential areas, including Arthurs Point, Kelvin Heights, and the Lake Hayes Estate.
The new Connectabus service would be on trial for 32 months.
At the launch, Otago Regional Council (ORC) Chairman Stephen Cairns urged residents to support the service.
Regional council ratepayers and the New Zealand Transport Agency had each funded 50% of the $3.2 million investment.
The aim was for the service to continue as a fully commercial operation after January 2013.
Queenstown Lakes Mayor Clive Geddes said he hoped the bus service would grow in popularity.
"The future is in public transport. There is no space to continue to drive our cars the way we have in the past 20 years," he said.
Mr Geddes said the improved bus service was important to the district's long-term transport infrastructure planning and would alleviate traffic congestion.
Buses would depart to Kelvin Heights, Arthurs Point and Lake Hayes Estate every 30 minutes in peak times, and every hour off-peak.
Lake Hayes resident Lee Webster said she would use the new service.
"I'm glad they have upgraded it. More people will use a better, more regular service," she said.
"It will be handy in the evenings because we are usually a bit screwed trying to get back from town if we want to have a drink after work," she said.
She did not think the cost was prohibitive.
The fares cost between $3 and $8 depending on destination, but the new package of services included the introduction of the GoCard electronic ticketing and fare-saving system.
Five days unlimited travel cost $35.
ORC corporate services director Wayne Scott said the GoCard meant passengers did not need to worry about carrying the right amount of cash.
The GoCard offered a 10% discount on the cash fare and could also be used on bus services in Dunedin.
Connectabus also increased the frequency of services between Queenstown, Frankton, and the airport from yesterday.
