The museum will be built and managed by the local community to provide a dedicated space to display World War II artefacts collected from the Alola area.
The whole community will share the financial benefits.
Attached to the museum will be an open-air trade haus for community members, particularly women, to sell souvenirs and refreshments to the estimated 3,500 Kokoda trekkers who pass through the village each year.
It will act as a focal point for visitors and is expected to become a busy hub during the trekking season.
Alola is the first of three communities along the entire Kokoda corridor to receive a new community museum and trade haus.
In coming months, similar facilities are planned for Efogi and Buna.