Almost 26,000 fewer vehicles a day will pass through Alderley Edge and Nether Alderley once the scheme is completed.
Transport Minister Rosie Winterton announced the decision to put more than £48m of Government funding into the project on Tuesday 29 July.
The 5km bypass will cut congestion and significantly improve the environment in the two villages. The scheme will also improve access to local businesses as well as improve links from other towns in the area to Manchester and Manchester Airport.
Complementary traffic management measures will be introduced by Cheshire County Council in Alderley Edge village, providing an enhanced and safer environment for those who live and work in the area.
The DfT will provide £48.224m with Cheshire County Council meeting the remainder of the total £51.648m cost. Works are due to commence in August with the scheme opening in 2011.
"This bypass will really improve the environment in Alderley Edge and Nether Alderley while cutting congestion, reducing delays and improving access for communities and businesses in southern Manchester and north east Cheshire," said Winterton.