Premier Daniel Andrews said his government would redevelop and expand the Maroondah Hospital in East Ringwood to accommodate an extra 9000 inpatients per year.
"The new Queen Elizabeth II Hospital will rebuild and refurbish the Maroondah Hospital from the ground up," Mr Andrews said in a media release.
The Labor government pledged to spend up to $1.05 billion on the new hospital, which would include a new emergency department, operating theatres, day-procedure facilities, specialist care spaces and two six-storey inpatient towers, adding 200 extra beds.
Construction would start in 2025 and would create 2500 extra jobs, the government said.
Mr Andrews said the name change, from an Aboriginal word to the Commonwealth's longest reigning monarch, was "a mark of respect to her unwavering commitment to healthcare and our community".
"The Queen was a longstanding supporter of Victoria's healthcare system," he said.
"As the patron of the Royal Melbourne and the Royal Children's hospitals, she demonstrated her devotion to patients and their care whenever she visited their bedsides."
According to the Maroondah Council website, "Maroondah" is an Aboriginal word that means "throwing leaves".
Her late Majesty Queen Elizabeth II currently has hospitals named in her honour in Brisbane and Adelaide, along with a medical centre in Perth.
The announcement comes a day after Victoria's opposition promised a $400 million upgrade to Maroondah Hospital, if it wins the election in November.
"We're going to increase the capacity here by another 100 beds, so that takes it up to over 420 beds," opposition health spokeswoman Georgie Crozier told reporters on Saturday.
"That will include capacity to improve the mental health services, intensive care, general surgical (and) general medical capacity in this hospital."
The opposition has previously stated it would scrap part of the Suburban Rail Loop and redirect $35 billion earmarked for the project into the health system.
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