The ACT's Auditor-General will carry out an investigation into whether the enlarged Cotter Dam project has been value for money.
ACTEW Corporation has been criticised by the Canberra Liberals after the project experienced cost blowouts and delays.
The project is expected to cost $409 million - well up from the initial estimate of $363 million.
ACTEW has blamed the increase on floods and a geological fault.
Chief Minister Katy Gallagher has welcomed the review, saying it is a sensible decision.
"At the end of the audit we'll all be able to see whether those increases were a reasonable increase in the cost of the project," she said.
Opposition Leader Jeremy Hanson welcomed the fact that the project will be examined in detail.
"The answers we're getting from ACTEW and from the Government aren't answering all the questions that we need in terms of where the money has gone," he said.
ACTEW's acting chairman Michael Easson says the audit will allow the politics to be taken out of the issue.
"I think its a great thing that objective people can now have a look at the facts," he said.
"It's not a political debate that we should be having, it's a debate about the evidence and we're not afraid of that."
The Auditor-General will also review the Capital Metro light rail project and Canberra's jail.
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