The Queenstown-based Lakes District Hospital is to be developed as an emergency, diagnosis and transfer centre.
The plan for the ageing hospital in the rapidly growing tourist centre was unveiled by the Southern District Health Board yesterday.
Uncertainty has long surrounded the future of the 21-bed hospital.
The board said it would address the hospital's immediate needs, including diagnostic capacity and exploring options for a CT scanner and ultrasound services.
It will also reconfigure the emergency department and develop a suite to enable more medical work via the internet.
Maternity and other ward areas will also be refurbished.
The board said wider issues still needed to be considered, including primary care and support from other hospitals.