The development includes building a 7,000-seater stadium for youth matches and 16 training pitches.
A new sixth form college and community facilities will also be built on the 80 acre site next to the Etihad Stadium.
The club said it had chosen BAM Construction as its construction partner and work was due to be completed before the 2014/15 season.
It said most of the jobs created on the site will be for local people.
Chief Executive Ferran Soriano said: "Today is an extremely important day for the future of Manchester City Football Club.
"The development of young and home-grown players is central to our strategy of creating both a winning team and a sustainable football club - an ambition outlined by Sheikh Mansour at the outset of his ownership in September 2008.
"We are now in a position, after four years of research and planning, to execute that strategy and we are delighted to join with BAM who will play a large part in helping us to do so."
Manchester City's football development executive, Patrick Viera, said it was vital to put investment in to produce players of the future.
He said: "It is really important that we have a project.
"When we are talking about developing young players, we are talking about time - like five, ten years.
"People have to be patient and spending time with young people at the academy I can tell you that in a few years they will be good, good players."
The academy, which will be linked to the Etihad stadium by a bridge, will feature a first team building with changing rooms, gym, refectory and injury and rehab centre.
There will also be accommodation for junior and senior players on site.
Manchester City Council chief executive Sir Howard Bernstein said it would benefit the whole area.
Work on Manchester City's new football academy is set to start within the next few weeks, the club has said.