Residents say the news is a "massive relief" locally after winter storms damaged the area's sea defences.
About 38 homes were affected by flooding when the South Forty Foot Drain overtopped in January 2025.
The £68m Whitesands project is expected to take just over three and a half years to complete.
Work on the land reclamation project, which will cost "hundreds of millions", will begin in 2029.
£5.2m will be spent raising the road and creating a flood bank.
The Environment Agency says a wall and embankment would protect thousands of homes and businesses.
North Yorkshire Council is to apply to the Environment Agency to lead the programme until 2033.
The Environment Agency says the site is on a floodplain and is not "essential infrastructure".
The scheme, to cost millions of pounds, involves widening the stream through the Cornwall village.
