The new link will connect Croxley Station on the Metropolitan Line with currently disused track between Croxley Green and Watford High Street overground station.
A bridge (pictured) will be constructed from Baldwins Lane in Croxley Green over a dual carriageway.
The railway will then run along Watford Road, the Grand Union canal, and through west Watford, where two new stations will be built in Ascot Road and Vicarage Road, near the hospital.
The new link means that the existing terminus of the branch line - Watford station - will be closed.
“This development will be crucial in regenerating Watford and bringing much-needed investment in the town.
“Over the last few weeks I have spoken to the Transport Secretary and the Chancellor to push for Government support as I believe it will be a pivotal boost for Watford and the start of an exciting new chapter for the town.”