Fifty years after the reforming Labor leader was sacked by the governor general, Prime Minister Anthony Albanese said the statue would honour the achievements of the Whitlam government.
"Australians will be able to stand with Gough, put an arm around the great man's shoulders, and remind ourselves that if we maintain our enthusiasm, it's always time," Mr Albanese said on Monday night in a speech at Old Parliament House.
Mr Albanese said the statue would welcome Australians to the building where Mr Whitlam served as prime minister and on whose steps he was ultimately dismissed.
Labor figures see Mr Whitlam as a reforming hero who introduced the precursor to Medicare, took the first steps towards Indigenous land rights and abolished the white Australia policy.
But his legacy is deeply contested: many on the conservative side of politics believe the then-Labor government failed to properly manage the economy and was too hasty in introducing its landmark reforms.
Mr Whitlam was sacked by governor-general Sir John Kerr on November 11, 1975, because of a deadlock in parliament over Labor's budget.
Liberal leader Malcolm Fraser was installed as caretaker prime minister before an election was held, which the coalition won in a landslide.
Mr Albanese condemned the sacking of his Labor predecessor, saying there was no real precedent for the move.
"Make no mistake: November 11th, 1975, was not a constitutional crisis, it was a partisan political ambush," he said.
"The dismissal was a calculated plot, hatched by conservative forces which sacrificed conventions and institutions in the pursuit of power."
But Mr Albanese said the election result should not be seen as an endorsement of Kerr's actions.
"Behind all the various schemes and subplots ... lies an overt refusal to respect the mandate, or even acknowledge the legitimacy, of a Labor government that had secured a majority in two consecutive federal elections inside three years," he said.
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