The plan will initially see 400 lots connected to the system, which will be large enough to transfer the sewerage flows of at least 1000 lots.

Minister for Natural Resources, Land and Water, Kevin Humphries, said the NSW government and Hunter Water will fund 100 per cent of the cost of the project.

"I appreciate there are literally hundreds of families who have been waiting more than 25 years for this day," Mr Humphries said.

"Hunter Water will now complete preliminary plans to transfer the waste to the Dora Creek or Charmhaven treatment plants, or possibly to a privately owned system that makes use of a small, locally operated plant."

Mr Humphries said the project goes into the government's forward estimate, which "locks in" the work regardless of any change of government.

"This is good news for Wyee, and for its existing residents, and it will also allow the community to make some decisions about where it goes in the future," he said.

Member for Lake Macquarie, Greg Piper, has been pushing for this decision for more than 20 years and said many locals had been involved for much longer.

The plan was officially announced at Wyee Childcare Centre, which Mr Piper said was symbolic.

"Connecting to Hunter Water's reticulated sewerage system will allow Wyee to realise its vast potential," Mr Piper said.

"It will open up land for affordable housing, attracting families and boosting commercial investment and local employment."

Wyee Childcare Centre owners Karen and Ian O'Connor said the decision comes as good news for local business owners.

"Small business in Wyee have to juggle pump-out costs and septic maintenance among other overheads, which can make doing business in the area incredibly challenging," Ms O'Connor said.

"Knowing we'll get sewerage here is a huge relief which has already lifted the spirits of the community."

Hunter Water managing director Kim Wood said detailed planning would begin next year.

"While the completion date will be largely determined by the option taken, we'd expect the system to be running no later than 2020," Mr Wood said.

WYEE Childcare Centre owners Karen and Ian O'Connor said the high cost of septic tank pump-out forced them to consider if it was worth staying in Wyee.

They, along with the rest of the Wyee community, are relieved the days of septic tanks are drawing to an end.

Wyee residents Lena and Brad Englert said they are looking forward to no longer having to check how full the septic tank was.

Ms Englert said when the tank is close to full and the pump-out service is still days away, they would have to shower with a bucket between their legs to catch the water, which they would throw outside.

Cherie Booth said money she expected to save on pump-out services would be good for both business owners and residents.

But it's not a totally free ride.

From the time their properties are connected to Hunter Water's reticulated sewerage system, residents will be charged a fixed waste water charge of $585 a year.

This charge covers the cost of all maintenance and general running costs of Hunter Water's waste water network.

"I think the town will go ahead now, the [lack of sewerage connection] has held it back," Ms Booth said.