The 22-kilometre tunnel under the Grimsel Pass in the Alps would serve a narrow-gauge railway connecting Innertkirchen in Bern with Oberwald in Valais, the two cantons announced at a press conference in Bern on Thursday.
The tunnel would also serve another use: carrying high-voltage transmission wires for Swissgrid to replace ones that are currently strung along 121 pylons through the pass, allowing for the pylons to be removed.
The cost of the investment is estimated at 580 million francs to be borne by Grimselbahn AG, a company launched by the cantons, and Swissgrid.
The cantons say that the cost of the project is more manageable because it is being shared with Swissgrid, creating "synergies" for both partners.
In addition to removing unsightly pylons from the mountain landscape, the tunnel would allow for the creation of a continuous 850-kilometre narrow gauge railway network, offering significant tourism opportunities, proponents say.
The promoters count on the railway carrying 400,000 passengers a year.
A feasibility study has already been undertaken ahead of an application for a concession to build the tunnel from federal authorities to be made in 2018.
The goal is to complete the project by 2025.