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The work between Moerangi and Bacon Sts means extra delays for users of Portobello Rd, as traffic will be reduced to one lane until its expected completion in March next year.
It will run in tandem with work on the Vauxhall to Macandrew Bay section, which acting group transport manager Nick Sargent said was progressing as planned and was expected to be completed by June next year.
The Peninsula Connection work includes road widening and in places road raising, and pedestrian, cyclist and safety improvements on 26km of road between Portsmouth Dr and the Royal Albatross Centre.
The entire project is expected to cost $64million.
The Dunedin City Council's share of the project stands at $28million, while the NZ Transport Agency is expected to pick up the rest.
Mr Sargent said 160m of new retaining wall would be built at Turnbulls Bay.
Access to side roads and residents' driveways would be maintained while the work took place.
The council acknowledged the work would cause extra delays.
Mr Sargent said staff were working hard to co-ordinate the work to minimise disruptions as much as possible.
"We're grateful to the public for their co-operation while this work is being done."