The one-and-a-half mile section of track, known as The Halton Curve, was closed to passengers in the 1990s.
The Â£18.75m cost of the project is being met by the Government's Growth Deal and the Liverpool City Region.
The restored line should reopen next year.
Upgraded track and signalling will enable a new hourly service between Liverpool and Chester, serving Liverpool Lime Street, Liverpool South Parkway (for Liverpool John Lennon Airport) Runcorn, Frodsham and Helsby.
One train an hour will operate initially but Network Rail expects that demand would strengthen the case for increased frequency, especially with plans to extend the service into North Wales - to be considered as part of the forthcoming Wales and Borders franchise.
Secretary of State for Wales Alun Cairns said: "This is a significant milestone on the way to making travel between north-west England and north Wales much easier."
Liam Robinson is Chair of the Liverpool City Region Combined Authority Transport Committee.
"The Halton Curve may only be one-and-a-half miles long but it is the key to unlocking so many more opportunities for people in our City Region, Cheshire and North Wales."
Work has started on a multi-million pound project to reopen a direct rail link between Liverpool, Cheshire and North Wales.