The $40,000 project has been more than a year in the planning and will be built on council-managed reserve land below Ramshaw Lane, near an existing skate park.
It has the backing of Arrowtown's village and business associations, as well as the local primary school.
Arrow Bikes owners Vicky Jenkins and Matt Middleton, who are behind the idea, were prompted by several local customers who thought a local track would be popular.
"It's basically a loop where children get to learn skills as they're riding around it,'' Ms Jenkins said.
"Once they're proficient at it, they don't actually have to pedal the entire way around - they use their arms and legs and ‘pump' the bike around the track.''
There are similar tracks in Queenstown, Kelvin Heights and Lake Hayes Estate.
Many Arrowtown people drive 10km to use the Lake Hayes Estate track.
In August 2014, Arrow Bikes ran an online survey with the local primary school that drew more than 450 responses, with only a single vote against.
A proposal was sent to the Queenstown Lakes District Council and fundraising undertaken.
A site in the middle of Arrowtown was considered ideal.
"Because it's primarily going to be used by young children, we needed it to be in the centre of town so that it was safe and had good facilities around,'' Ms Jenkins said.
The main contributors to the track were the Central Lakes Trust and QLDC ($10,000 each), the Community Trust of Southland and Sky City Queenstown Casino Community Trust ($5000 each), and the Queenstown Mountain Bike Club ($2500).
Local businesses have also chipped in.
The council has already removed stumps from the 35sq m area the track will occupy.
Work is expected to begin in the coming weeks and take six weeks to complete.
Annual maintenance is expected to cost about $2500.
Ms Jenkins said the council had been amazing to work with and she singled out staff member Jan Maxwell for her help.
