For the first time in 20 years, Jetstar will be flying to a new destination from March 2020 with direct flights from Melbourne to Busselton.
Flights will run three times per week with tickets starting at $75 one way to get people buying tickets.
Jetstar Group chief executive officer Gareth Evans said the airline expected strong demand from Melbournians wanting to explore a destination renowned for its food, natural beauty and surf beaches.
"With its world-class surf breaks and incredible food and wine, a visit to the region is on the travel wish lists of many travellers," he said.
City of Busselton Mayor Grant Henley said the news was a 'particularly exciting' milestone for the Busselton Margaret River Airport upgrade project.
"This new and direct route to Melbourne opens up a world of possibilities for local, national and international travellers and will generate income and create jobs in tourism and tourism related industries across the South West and the State more broadly," he said.
"Significant time, energy and resources have been invested into developing this new facility which will provide long-term regional benefit. Securing an RPT service is an excellent outcome."
Jetstar expect the new service will contribute more than $40 million to WA's economy over the next three years with more than 60,000 visitors in that time.
The State Government has spent $43.25 million towards the development of the airport and airline attraction, and will invest a further to $3.265 million to upgrade terminal infrastructure to allow Jetstar's air service to commence in March 2020.
Regional development minister Alannah Mactiernan congratulated all involved in 'bringing this dream into a reality'.
"We know the Margaret River wine region has an international reputation that can be built on for the entire region," she said.
Federal Member for Forrest Nola Marino has also welcomed the news saying the Commonwealth have invested significant amount of money into the airport.
"This announcement, as well as the Busselton Freight Hub, will help to promote our region and businesses to a far wider market," she said.
Whether or not an airline would be secured for interstate flights has been a point of contention since the change in State Government in 2017 when money for the terminal was put on hold.
The McGowan government postponed the development of the terminal because an airline had not been secured.