The scheme would see water taken from the River Trent and stored in a new 230m-litre reservoir west of the A1133, near Newton-on-Trent.
It would then be treated and used to supply homes and businesses in the city with up to 20m litres per day.
Work is expected to start this month and take around two years to complete.
Paul Valleley, Director of Water Services for Anglian Water, said: “The current drought affecting our region has highlighted just how important water supplies are.
“This development will help us to ensure we are making the best use of the available resource and safeguard our customer’s drinking water supplies long into the future.”
A new pumping station will extract water, under licence from the Environment Agency, from the River Trent close to Newton-on-Trent into a 20-acre storage reservoir which will hold around 230m litres.