The funding will also go towards open days, planting days and new signage at the falls.
Environmental River Patrol- Aotearoa's Milan Ruka said it was "great to hear".
Mr Ruka said the fencing and planting would definitely make a difference to the water.
"They've got to start at the feeders, the small streams and then they'll be able to cut the sediment right down."
He wants to see a "generous margin" between the stream and fence.
"It's going to create about a 60 per cent improvement, but they've got to follow through and identify the E. Coli."
He is working on a University of Auckland project using sensors to monitor water.
"I believe the electronics have got to be introduced where we can keep an eye on pollution."
Northland Regional Council farm plan manager Lorna Douglas said stronger rules proposed by the Whangarei Harbour Catchment Group to help improve water quality were due to come into force within the next several years under the draft regional plan.
"These will also help, as they will legally require landowners to fence stock out of waterways upstream of a number of identified swimming sites, including the falls."
She said testing of the water at the falls showed the main sources of bacteria were from either wild birds or stock and the quality was worse after rain.
"Fencing stock away from waterways will not only reduce bacteria levels, it will also lessen the amount of sediment from stream bank erosion finding it's way into the water, which will improve water clarity too."
Mr Smith said the project has a total cost of $575,000, with the regional council contributing $150,000 and farmers expected to contribute the remaining $167,000.
Whangarei mayor Sheryl Mai said the project would have a flow-on effect, improving water quality downstream in the upper Whangarei Harbour.
"It means the dream of safely swimming in the Town Basin gets closer to reality."
The project's first community planting day is on June 24 at Springs Flat Rd commercial area from 11am to 3pm.