Construction is due to start next year on the initial 183km, $US 1.8bn phase of the line, which will link the port of Balikpapan with Kutai Barat. The line is due to open in 2017 and will carry around 20 million tonnes of coal.
A second phase will extend the line 60km to Murung Raya in Central Kalimantan at a cost of around $US 600m.
Both phases will be financed by private investors and Russia's state development bank Vnesheconombank.
Indonesia is one of the world's largest exporters of thermal coal, most of it from Kalimantan, which is expected to produce around 350 million tonnes of the commodity this year.