The initiative aims to reduce the flood risk to over 1,400 properties, including 950 homes.
The first phase of development involves rebuilding existing flood walls along Brookvale Road and developing new walls alongside Atlas Industrial Estate and behind warehouses along Tame Road.
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Work will also begin to stop water flowing underneath the railway line between Electric Avenue and the A38.
A redundant sewer which crosses the River Tame at Walker Drive will also be removed.
An application for Phase 2 is scheduled to be submitted later next year with construction planned for early 2017.
The second phase of the scheme involves increasing the capacity of the existing flood storage at Forge Mill Lake in the Sandwell Valley.
The design of this phase is not yet finished, but it is likely to involve developing new embankments and a flood gate to control flows down the river.
Rachel Kelly, Environmental Agency Project Manager, said: "We're really pleased that works have now begun. As well as helping to reduce flood risk, we hope these defences will be an integral part of the community."
(LM)
