The Government is to spend more than $80 million during the next five years upgrading commuter rail services in Wellington and Auckland.
Tranz Scenic services will also get an overhaul.
The Government bought the rail network on 1 July and relaunched it as KiwiRail.
Finance Minister Michael Cullen says the money will be used to upgrade locomotives and other rolling stock.
Cabinet is to consider a more expansive investment programme, including buying new locomotives.
Dr Cullen says there will also be an analysis of whether it is feasible to assemble locomotives at an engineering works in the Hutt Valley.