Virgin Blue's maintenance centre will be based at Melbourne Airport, creating almost 250 jobs.
The announcement came as the airline disclosed that one of its aircraft had lost a wheel while taxiing for takeoff on Saturday.
The deal struck between John Holland Aviation Services (JHAS) and the budget airline is also expected to deliver up to $8 million a year to the Victorian aviation industry through component repairs.
Premier John Brumby said the contract would generate 249 new jobs over the next five years and support Virgin Blue's new Embraer 170/190 fleet, which is expected to reach 24 by the end of 2011.
