The 4080sq m expansion will more than double the size of the international terminal and add a third to the airport footprint.
Work started last month.
Airport chief executive Scott Paterson said stage one, with construction being done by Dunedin-based Cook Brothers, would comprise new duty free and Customs areas, more toilets, a third baggage reclaim area and expanded Ministry of Primary Industries and Biosecurity areas.
Smart-gate technology was also planned, but might not be ready next year. Changes will enable the airport to process almost 1000 passengers an hour - up from the present 480.
In stage two, the Ministry for Primary Industries and Immigration will be located together. In stage three, a mezzanine floor for international departures will be opened.
It will effectively double the number of outbound passengers able to be held in the terminal.
Mr Paterson said the development also meant the airport had reached building capacity.
Unless the Environment Court approved the airport's acquiring 18.4ha of land from Remarkables Park Ltd, known as Lot 6, growth would be stymied, he said.
Already the corporate jet terminal is being squeezed, with a 14% increase in landings in the past financial year - 231 in total - peaking with 33 landings in March.
Jets have been turned away because of a lack of space.
''These are high-value travellers during winter and we couldn't accommodate their jets.''
The airport wants to shift its general aviation precinct for helicopters and light aircraft, along with the corporate jet terminal, making way for more jet stands and a parallel runway to Remarkables Park Ltd land.
The runway would enable aircraft to be ''stacked'' while waiting to take off.
Without the additional stands and runway, airport growth, including the number of flights able to land at peak times, would be capped and tourists could have to be bused into Queenstown.
''We're like a frog in a pot of water, boiling - it just boils itself to death.
''We'll just become clogged.''Destination Queenstown board chairman Mark Quickfall said it was clear the airport had ''some big challenges'' to work through, but ''good, commonsense decisions'' were required.
''I don't think we should be alarmist. What people look for [when they travel] are well-priced fares, capacity and convenience.
''We need to do whatever we can to make that available.''
Last month, former Tourism Dunedin trustee Rainsford Grubb said the resort's airport was a second South Island hub behind Christchurch.
Dunedin needed to work closely with Queenstown as the best way to attract visitors, Mr Grubb said in a report to the Dunedin City Council.
Passenger numbers rose 7.9% to more than 1.3 million in the 12 months to September.
Mr Paterson said stage one was being built before it was needed. The second and third stages would be opened when demand required.
The airport's capital works programme was targeting five million passengers a year.
However, ''we don't have a view as to when that five million will be achieved''.
Unless Lot 6 was acquired, that number might never be realised, he said.
The introduction of night flights, expected in winter 2016, would help increase capacity but would not solve the long-term issues.
While a decision from the Environment Court on Lot 6 is expected by the end of the year, Remarkables Park Ltd director Alastair Porter said the two parties were in ''private, confidential negotiations''.
Mr Porter said ''some progress is being made'' through the negotiations which, if successful, would ''short circuit'' the need for further court decisions.
