It will start from the CWA Gardens and continue along until Conway Rd, Dookie for about 3.2 km.
Dookie and District Development Forum chairperson Jeanette Ryan said the forum was "thrilled to bits" the project was coming together.
“It's going to have so many benefits including tourism,” she said.
“But also it gives a safety margin for those who want to ride the trail so that they're not out on the main roads when there's heavy traffic, particularly at harvest time when you have all those big trucks; they can't see the bikes.
“As well as safety when you're riding along there, it's the most beautiful views. If I was younger I would be out there like you wouldn't believe,” she said.
“It proves that by involving your community and working with council you can get things done."
The 5.5 km first stage starts just after Tungamah Boundary Rd and finishes in the CWA Gardens, connecting it with stage two.
Mrs Ryan said the locals had been "incredibly supportive" of the entire project since stage one was completed in 2011.
She said the ultimate dream was to continue the rail trail through to Shepparton, but Mrs Ryan admitted "it will be years before it takes off the ground".
Mrs Ryan said council and the forum consulted with nearby landholders to discuss the impact stage two would have.
“There were about six who spoke with us to identify the concerns the landholders would have if this rail trail was built,” Mrs Ryan said.
“They mentioned tree management, culvert management, fire breaks, noxious weeds and vermin control.
“They also said they want to celebrate agriculture; Get the community to enhance this project and be part of it, plus they wanted to preserve access for local livestock.”
Greater Shepparton City Council infrastructure director Phil Hoare said the council hoped for a June 30 completion date.
“The budget for the project is $525 000, that is comprised of various elements including civil works, fencing and native vegetation,” Mr Hoare said.
“The grant allocation from the Federal Government for this project is $275 000. “Council has allocated a budget to this project and has let a contract for its construction. Council is committed to delivering this project to the Dookie community.”