The chancellor has given a firm commitment in his Spending Review to support the Midland Metro extension from Wolverhampton to Birmingham.
It currently terminates at Birmingham Snow Hill but will be extended to Birmingham New Street station.
A commitment was also made to support the complete redevelopment of the station.
George Osborne said including these projects, he would invest more than £30bn in transport by 2012.
He told the House of Commons: "In the West Midlands, we will extend the Midland Metro and completely redevelop Birmingham New Street station."
There had been concerns that resources for the New Street redevelopment could be cut back.
The metro expansion project has been 15 years in the planning.
It will extend along Bull Street and Corporation Street and end outside New Street Station.
Transport Secretary Philip Hammond welcomed the news.
"It's very good news for the city, for economic growth in the region and good news for regeneration within Birmingham."
Councillor Angus Adams from the West Midlands Passenger Transport Authority said he was surprised by the confirmation.
"I had been very very hopeful that this was going to come because we've been working on it for an awful long time," he said.
"But now this is culmination of a lot of hard work by a lot of people for a long time."
Meanwhile, some union members held a silent protest in the city centre angry at the impact the cuts could have on jobs in the region.
Roger McKenzie from Unison said: "We're already facing really hard times here.
"Anything you take out of the public sector in the West Midlands is going to have a devastating impact."