Crews have started on the project, which also involves work in Bundarra Street, Waterfall.
It is due to be completed by the end of December.
Heathcote MP Lee Evans said the new main would improve the reliability of the water supply and reduce wastage.
Sydney Water’s managing director Kevin Young said the project was being carried out in consultation with the NSW National Parks and Wildlife Services.
The work is being done by NetWorks Alliance, comprising of Sydney Water, Lend Lease, CLM Infrastructure and Veolia Water Network Services.
Mr Young said Sydney Water was spending $177.3 million this year on its water distribution and sewer networks, involving 21,000 kilometres of pipes.