Essential works will include replacing electrical wiring, water pipes and heating system, which were installed just after the second world war.
The government said work is needed to prevent a serious risk of fire, flood and damage to both the building and the Royal Collection of art.
It added that if Buckingham Palace suffered a fire like the one which raged for nine hours through Windsor Castle in 1992, it could cost as much as £250m for a single wing of the palace.
The overhaul will also give visitors better access, opening up the palace to the public,
The work will be funded through a temporary increase in the Sovereign Grant from 15 per cent of the Crown Estate's profits to 25 per cent, which will go on throughout the 10 years the works take place. Last year, the Crown Estate made £304.1m.
“Tourists are drawn to this country because of our culture, heritage and royal legacy, and when they visit they spend billions of pounds and support thousands of jobs," said David Gauke, the chief secretary to the Treasury.
“We must ensure that the special architectural and historic nature of some of our greatest buildings are protected for future generations, therefore it is only right we ensure Buckingham Palace is fit for purpose.”
Earlier this year a man was charged with trespass after he scaled a gate at the palace - although the Queen wasn't at home.