The government will underwrite the cost of the privately-financed £40m scheme at Cheltenham's Pittville campus.
It will include 570 new rooms, the refurbishment of existing rooms and media centre with a bar, refectory, gym, shop, café and games area.
Chancellor George Osborne said the village would give students the "first-class facilities they deserve".
It will be delivered under the Treasury's £40bn UK Guarantee Scheme.
The University of Gloucestershire's Stephen Marston said: "The university is delighted that financial close has been achieved on the scheme. This means we can now move ahead with the building work.
"The new student village at Pittville will give our future students a great place to live, with well-designed and well-managed accommodation and good facilities in a wonderful location."
Work is expected to be completed in time for undergraduates for the 2017/18 academic year.
A former teaching campus of the University of Gloucestershire is to be turned into a student village.