Barnaby Joyce says the Commonwealth will match the state government's recent $600 million commitment to upgrade the dam near Bundaberg to its full capacity.
Authorities have long feared the dam could collapse after it was so badly damaged during ex-tropical cyclone Oswald in 2013 that the water level had to be lowered by six metres to prevent a disaster.
Mr Joyce says the federal government's $600 million commitment will be a relief for Wide Bay-Burnett farmers.
"Farmers in the region have spent the last two years in limbo worrying if they'll have the water they need to support and grow their businesses into the future," he said on Friday.
"It's all well and good for the Queensland Labor government to say they'll fix the dam but the funding they've committed falls well short of what's required to complete the job.
"Our investment will help provide the water security the region needs while supporting 250 construction jobs and unlocking new and expanded opportunities for farmers and businesses."
The project - set to start next year and be completed by 2028 - will return the dam to 300,000 megalitres, almost double the dam's current capacity.
Federal Water Minister Keith Pitt welcomed the news but claimed the state government should have built the dam properly in the first place.
"Despite desperate pleas to fix it from our local agriculture sector over the last two years, we've had nothing but delays and excuses from the state government about why it couldn't be done," he said.
"While I am pleased that we are able to deliver the money that's necessary, it breaks my heart to think that this funding could have gone to a new level five hospital for Bundaberg or to dual-carriage the Maryborough-Bundaberg section of the Bruce Highway."
The Commonwealth will establish a project team to work with the state government and ensure "Paradise Dam is built back better and to modern standards".
A commission of inquiry last May reported the Paradise Dam - the Wide Bay-Burnett region's farmers' main water source - had structural issues.
It recommended a stronger independent review of new dam construction, better integration of geotechnical and hydraulic engineering and more rigorous compliance checks.
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