The new infrastructure will eventually support about 14,000 outer northern residential homes and 1500 hectares of commercial land with the recycled water by 2030.

Yarra Valley Water managing director Tony Kelly said the new project would send sewage from Craigieburn to the EPA-approved Aurora recycled water treatment plant in Epping North, where it will be treated under stringent Department of Human Services guidelines.

"The severity of our water situation is really driving innovation in water management and we are pleased to assist residents and businesses in the outer northern suburbs by actively pursuing the use of alternative sources such as recycled water."

Highlands North will be the first Craigieburn estate to use the water.