Victoria Cafasso, 20, was on a trip visiting her cousin when she was stabbed multiple times in broad daylight on Beaumaris Beach on October 11, 1995.
Her body was discovered at the water's edge, but the murder weapon was never found.
Tasmania Police last week released reconstructed images of a 1970s light-coloured Subaru station wagon seen in the area at the time, as well as a description of its male driver.
A search near St Helens, about 10km north of Beaumaris Beach, involving about 20 land crew as well as police divers was launched on Thursday.
"This is an area that has not previously been searched, but is an area of interest following a recent review of the case," Tasmania Police said in a statement.
During the review, police found a stronger link between the description of a man seen running across the beach hours before Ms Cafasso's body was found, and the driver of the station wagon.
Detective Acting Inspector Andrew Hanson said it was discovered one of the witnesses spoken to in 1995 reported being tailgated by a Subaru that was being driven erratically.
"That car veered off suddenly down a coastal track. That has led us to where we are (searching)," he told reporters.
"Unfortunately that witness is no longer with us, they passed away. But they were able to provide us with a map of that coastal track."
The unknown man, who has never been spoken to by police, is described as being in his 20s with a slim, very fit build, with blond hair, about 183cm tall, and with the appearance of a surfer.
Insp Hanson said the man was a strong person of interest.
"We never close these cases, and the latest searches showcase our investigators' commitment to finding answers for Victoria's family," he said.
Insp Hanson said a "significant" amount of information had been provided to police by the public since last week's initial appeal.
Anyone with information about the vehicle of interest or the driver has been urged to contact police.
The initial police investigation into Ms Cafasso's death was criticised by a coroner, who said the beach where her body was found was not entirely cordoned off.
The scene was contaminated by foreign objects, including a tarpaulin, and wasn't recorded on video, while the forensic state pathologist didn't attend.
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