The device will transport fish 43m up the wall of Tallowa Dam as part of $26 million worth of infrastructure works to begin this week.

Member for Kiama Matt Brown said the new fish lift would help 10 native fish species, including the endangered grayling, migrate between the lower and upper Shoalhaven River.

The size of a small skip bin, the fish lift attracts then traps migratory fish in a hopper at the base of the dam and then transports them up and over the dam wall.

Operated by a timer, the lift will be the largest in NSW and is second in size to a fish lift on the recently constructed Paradise Dam near Bundaberg, Queensland.

Works on Tallowa Dam will also allow for new environmental flows for the lower Shoalhaven River that will ensure more water is reserved for the river's health and better mimic the natural river flow.

Earlier plans to raise the dam wall by 7m were abandoned after strong opposition from the Kangaroo Valley community.

Mr Brown said the works should be finished in mid-2009 and would make Tallowa Dam the first dam in NSW to have both a fish passage and variable environmental flows.

"These works are not only essential to secure the future of our water supply and the ongoing health of the river system, but will also make the district more attractive for recreation and tourism," Mr Brown said.

A spokesperson for the Sydney Catchment Authority (SCA) said the new flow regime could start when the NSW Government lifted "drought water restrictions".

This was likely when the SCA's dam levels reached 70 per cent capacity.

Mr Brown said the dam picnic area would be closed during construction and access to the area for bushwalkers and canoeists may be restricted.