The redevelopment would include the restoration of the 136-year-old white stone church and the construction of a hall to replace the existing one, which has been deemed too small and "totally inadequate".
It has been planned for two years, and it is hoped construction will start in the new year.
St John's Restoration and Building Committee chairman Bruce Patton said if the work was not done now, there was a "real danger" the structural decline would accelerate and the church might have to close.
"We think that is unconscionable, and we believe it is something the wider community would not want to see happen."
More than $700,000 had already been assured through grants from the Central Lakes Trust, the Community Trust of Southland and the Otago-Southland Presbyterian Synod.
Wakatipu Community Church (Presbyterian) minister the Rev Geoff Ellery said he hoped the balance would be raised from the community.
"No-one underestimates the scale of this undertaking for a very small congregation, so we will be looking for support from a wide section of the community," Mr Ellery said.
The original church was designed by F. W. Burwell, an architect who also designed the Eichardt's building in Queenstown, the old courthouse, and the council chambers on the corner of Stanley St.
The church was built by goldminers in 1873, under the direction of Queenstown builder Peter Walker, at a cost of 550.
It opened on July 6, 1873.
The wooden building being used as the hall was moved from Speargrass Flat in 1959.
It was previously the Millers Flat (Malaghans Rd) Church, which was built in 1871.
The building and vestry, added at a later date, are registered as category 2 protected buildings with the New Zealand Historic Places Trust.
They are also listed on the Queenstown Lakes District Council district plan.
Any alteration is a discretionary activity under the plan and requires resource consent, which has been granted.
Mr Ellery said the wooden hall at the rear of the church was used by church and community groups.
However, it was difficult to heat, the plumbing froze in winter and it was considered to be "totally inadequate" for today's needs.
The new 150sq m hall complex had been designed by Queenstown architect Jackie Gillies to complement the historic church and its surroundings.
Ms Gillies said the new hall had to be "subservient", yet at the same time sympathetic to the historic church, so the hall had to be pushed as far back as possible on the site.
"It is not a replica. It is subtly and discreetly new. We've retained the same shapes and forms and some of the same detail from the original building, but on a simpler scale."
Ms Gillies said it was hard to overstate the visual and historical importance of the old church, which was referred to in one early history of Otago as the "Citadel at the Gate".
"It's an icon which encapsulates the history of the town as you drive in from the Lake Hayes direction."
Further complicating matters were the two giant Sequoia trees at the entrance to the church, which were also protected, she said.
The trees could not be touched, despite their roots posing problems for church buildings in the past.
The new hall would seat 150 people - 100 in the main hall and the remainder in two adjoining lounges, which could be incorporated into the main auditorium.
A modern kitchen would feature two serveries and other additions were a foyer, store room, office, toilets and baby changing facilities.
The hall would also be equipped with technology for sound and data projection.
Arrowtown Village Association chairman Richard Newman said the hall would be a great asset to Arrowtown "which still holds its community base and values, unlike some other towns which have lost their community spirit".
