The investment is being made in the Western Turner Syncline phase two mine (WTS2), part of the Greater Tom Price operations.
The project comprises existing and new deposits, a new crusher and a 13km conveyer.
The new conveyor system will help lower greenhouse gas emissions from the mine by 3.5% compared to road haulage.
Rio said it was assessing additional options to reduce emissions including renewable energy solutions.
Construction will begin in the March quarter of 2020, employing a peak workforce of 1,000, for first ore in 2021.
The project is expected to deliver an attractive internal rate of return with a capital intensity of about $25 per tonne of production capacity.
The investment is included in Rio's existing guidance for Pilbara replacement capital for 2020 to 2022.
Last month Rio lifted its 2020 iron ore sustaining capex guidance from $1 billion to $1.5 billion as it enters a "significant period of renewal".
"Our iron ore business continues to deliver industry-leading margins as we drive performance from our mines," Rio Iron Ore boss Chris Salisbury said.
"This significant investment in the Greater Tom Price hub is one of a pipeline of high-quality, low-cost options that will underpin production of our flagship Pilbara Blend product well into the future."
The haul truck fleet at WTS2 will be fitted with Autonomous Haulage System (AHS) technology to enable autonomous haulage from 2021.
About half of the company's haul truck fleet will be capable of operating autonomously by the end of the year with plans being assessed to expand this in the years ahead.
Iron ore production guidance for 2019 remains unchanged at 320-330 million tonnes at C1 cash costs of US$14-15 per tonne.
It expects a 5% rise in shipments in 2020.
Rio doesn't expect to reach 360Mt per annum until 2022, given the $2.6 billion, 43Mtpa Koodaideri development won't achieve first ore until late 2021.
