Transurban said the interchange was an important connection to CityLink.
But long queues of traffic at the interchange during peak periods resulted in trips involving CityLink and the Tullamarine Freeway taking too long.
The three-year upgrade of the interchange is expected to reduce delays for CityLink customers and cut diversions onto other roads.
Transurban and the State of Victoria will share increased tolling revenue received by CityLink as a result of the interchange upgrade.
The Victorian government will receive a minimum of $11 million, which will be paid on 1 July 2005.
In return for Transurban's provision of $150 million to VicRoads, the Victorian government will transfer to Transurban some of the concession notes issued by CityLink to the state under the Melbourne CityLink concession deed.
The $302.8 million of concession notes transferred will cover the principal amount of the funds provided by Transurban and annual capitalised interest of 9.5 per cent.
Transurban managing director Kim Edwards said the interchange upgrade was important for Transurban.
"Not only have we ensured that a significant bottleneck which is discouraging motorists from using CityLink will be removed at the earliest possible date, we have also demonstarted the feasibility of a funding mechanism which could be used for similar initiatives in the future," he said.
Transurban will pay VicRoads $100 million on 1 July 2005 and the balance on 1 July 2006.
Transurban will fund the payments from short-term borrowings.
At 31 December 2004, the face value of concession notes issued to the state was $843.9 million. A further $2.36 billion will be issued over the remaining life of the CityLink concession.
Redemption of the concession notes is expected to start in 2011 if the concession fees are confirmed as deductible and in 2013 if they are not.