The Sutherland to Cronulla line will be the first section of Sydney's rail network to have digital signalling.
This will mean train drivers receiving information directly to their cabin, rather than having to look at traditional trackside "traffic light" signals.
"It might sound like a minor change, but it's going to make a huge difference to the way our rail network operates," said Minister for Transport and Roads Andrew Constance, announcing contracts of $110 million with Siemens Mobility.
"While traditional signals have served Sydney well for decades, they are fixed at set locations and limit the railway from operating at its full potential."
The new technology will enable trains to run closer together and, when an incident happens, the network will recover more quickly."
Construction between Sutherland and Cronulla is due to start next month, with the new system due to be ready for operations in 2023.
The work forms part of the $5.3 billion More Trains, More Services Program, which will provide a 30 per cent increase in services on the T4 Line, with extra services from Cronulla, Waterfall and Hurstville.
Increased services will be introduced progressively from 2022.