The latest stretch of the Water of Leith defences between Murrayfield and Roseburn has been held up by spiralling costs and errors in the previous stage.
But the city council has pledged the £4.7 million needed to get construction started after reshuffling its budgets.
Contractors are now being sought for the second phase of the scheme, with work due to begin in autumn next year.
Jeremy Balfour, Conservative councillor for Corstorphine and Murrayfield, said: “This is excellent news for the whole of the Murrayfield area, and has been long-awaited.
“Now that the green light has been given, it is going to give people a lot of reassurance.”
The plans were put on ice after costs for the first stage between Stockbridge and Canonmills soared from £18m to £30m amid allegations it was “over-engineered”.
Rob Leech, the troubleshooter who got the trams project back on track, was drafted in to oversee the flood prevention works.
The News told in April how weekly meetings were being scheduled to ensure the second phase of the defences was properly managed and financed.
Plans were first drawn up for the project after the Capital suffered its worst flooding for 80 years in April 2000. Three old people’s residences and at least 40 homes were evacuated as power was cut and cars damaged.
John Yellowlees, chairman of the Murrayfield Community Council, said residents would be delighted to learn the cash had been found – and said the flooding remained a bad memory for many.
He said: “There is no doubt that flood prevention is far and away the most important issue for the people of Murrayfield.
“We are delighted that this funding gap will be plugged.
“The flood water – which is not really water but sewerage – spread far and wide. Some people were out of their homes for months, including those in sheltered housing. People remember that all too vividly.”
Councillor Lesley Hinds, the city’s environment leader, vowed that the project would be well managed.
She said: “We can now proceed with the next stage of this hugely important project, which will safeguard hundreds of properties from flooding in the future. We’re confident that phase two will be delivered efficiently and at best value to the taxpayer.”