Transport Minister Conor Murphy has identified the preferred route for the A5 Western Transport Corridor.
The announcement was made in Omagh on Tuesday. The minister responsible for transport in the Irish Republic, Noel Dempsey, also attended the launch.
The new road will be an 86km long dual carriageway from Londonderry to Aughnacloy and is estimated to cost between £650m and £850m.
Mr Murphy said the road could lessen journey times by up to 20 minutes.
He also said those home owners affected by the new route would be contacted in the next few days.
"Unfortunately it is not possible to construct a road project of this size without adverse effects on dwellings, property and land," said Mr Murphy.
"I am pleased to say that our designers have succeeded in developing a preferred route which impacts directly on only a very small number of dwellings.
"Staff from Roads Service and its project consultants, Mouchel, will be visiting those dwelling owners to personally inform them of the line of the preferred route."
The proposed road will have no private accesses and existing roads will be taken over or under it, or stopped up.
It is also hoped the road will take most of the long distance traffic, particularly heavy good vehicles, away from the existing A5 and the towns and villages along it.
The minister said the road was a significant step in improving connections between Dublin, Derry and Donegal and would facilitate possible future road links between the A5 and the A6 and also across the River Foyle to the west of the city and Donegal.
• From Derry a new single carriageway will by-pass to the west of New Buildings.
• Immediately south of New Buildings there will be a roundabout which will be the start of the new dual carriageway.
• Running southwards from New Buildings, the preferred route will track west of Magheramason, east of Bready, west of Cloghcor and Ballymagorry and by-passes Strabane to the west.
• It will pass between Sion Mills and Glebe, pass west of Victoria Bridge and Newtownstewart and continue west of Mountjoy and Omagh.
• At the southern end, the preferred route will track to the west of Garvaghy and Ballygawley before bypassing Aughnacloy on its east side to meet with the A28 Armagh/Newry route.
• A short section of single carriageway will facilitate connection to the proposed improvements to upgrade the N2 route in County Monaghan.
Detailed maps of the route will go on public display next week and Roads Service staff will be available to answer questions.
Construction of the dual carriageway is expected to commence in 2012 and be completed in 2015.