The heavily indebted water company is inviting tenders for the major £240million scheme next month.
Works will include trebling storm tank capacity, increasing sewage treatment flows by 80 per cent and raising power supplies.
The water company held an online briefing for interested parties on September 10.
However, it is likely to take seven years to deliver the full upgrade.
The announcement comes after Oxford City Council blamed Thames Water for holding up the building of thousands of new homes.
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The Environment Agency objected to the city council’s proposed Local Plan for 2040 because a lack of investment in the Oxford Sewage Treatment Works meant it did not have the capacity to cope.
The council warned it could hit the delivery of more than 4,000 homes and over 500,000 square metres of commercial schemes up until March 2028.
In addition, parts of Cherwell, South Oxfordshire and Vale of White Horse districts are also connected to the works, which deals with waste from more than 200,000 people.
In March the Environment Agency strongly objected to plans for 1,450 new homes at Bayswater Brook, to the north of Barton, by Christ Church College and its partner Dorchester Residential Management over lack of sewage capacity.
Plans for new businesses are also being affected.
The city council said Thames Water has placed a restrictive condition on a new R&D building for science and tech start-ups in Stansfeld Park, Headington.
Councillor Susan Brown, leader of Oxford City Council, described the objections as “a very significant environmental and economic issue for both Oxford and Oxfordshire”.
She said: “Protecting and improving the water quality in our rivers and streams is fundamental, as is having adequate water supply and sewage capacity.
“We need to have the right infrastructure in place to do this. The fact that we do not, and that this is now also preventing or delaying the delivery of much-needed new homes and job opportunities, is a source of huge frustration and anger.”
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Thames Water has said that “due to the size and complexity” the initial upgrade is only expected to be completed in 2027 with a full solution not being delivered until 2031.
The Environment Agency said it would object to planning applications “where necessary”, and offer advice on action to help address risks.
Reacting to news of the upgrade Ms Brown said: “It’s really positive Thames Water are developing plans to address the issue, and we welcome it.
“These plans will need approval from the Environment Agency (EA) and will take years to come to fruition, so we need to work with Thames Water, the EA and government to find a solution that does not hold up the planning and delivery of homes.
“That is our focus.”