The project, a collaboration between Indian spirits company Kyndal and Perthshire distiller John Fergus & Co, will involve the construction of a new malt whisky distillery and bonded warehouse in Glenrothes.
The distillery is expected to begin production in 2015 and will cost in the region of £6.7 million.
The Scottish Government has contributed £1.58m to the project, with Scottish Enterprise adding £240,000 towards the construction of the distillery.
The new distillery is expected to focus on the export markets of India, Africa and the Far East.
Ian Palmer, managing director of John Fergus & Co, said India had been chosen as the distillery’s principle market due to “excellent” long term growth potential.
“The Scotch whisky industry is currently enjoying a period of great demand and expansion and now is the right time to be making such a bold investment.
“We must however take this opportunity to express our great thanks to Fife Council, the enterprise agencies and the Scottish Government for their support for our project,” said Palmer.
Humza Yousaf, Scottish minister for external affairs and international development, said the Scottish Government is “fully committed” to supporting the distillery project.