It comes after a series of high-profile controversies surrounding the topic, including the Urewera police raids, the startling international revelations of the Edward Snowden files and the so-called GCSB Bill introduced by the Government last year.
Professor Hill will be working with Dr David Burke from Cambridge University, an expert on espionage, and David Filer, who is a New Zealand military historian.
He said while there have been books written about aspects of New Zealand's security intelligence services, the Marsden funding would support the first sustained and integrated academic scrutiny of this country's security surveillance institutions and their operations, and lead to publication of the first comprehensive overview of covert intelligence gathering here.
"In a country like New Zealand there is obviously a trade-off between having an open and democratic society and the state's need to carry out covert intelligence of those they deem to be potentially a threat to national security," he said.
"Our goal is to thoroughly research and document what happened between 1907 and 2007, and why, and then leave people to draw their own conclusions."
He expected that when his book is published in about three years, Kiwis will better understand what is happening in security surveillance in New Zealand today.
Professor Hill said while the researchers would not be able to view all the relevant documents, he was "absolutely confident" that they will be able to access the material they need to write an informed history.
As to whether the book would contain revelations, Professor Hill said he genuinely did not know.
"Obviously there are some things we know that we don't know but there are lots of areas in which we don't know what we don't know," he said.
"If we find anything new, it will be a revelation to us as well as to our readers."
While New Zealand was late in producing a history of its security surveillance, it was not far behind other similar countries.
"The history of MI5 only came out a few years ago and the first volume of the history of the Australian agency ASIO was published only last month," he said.
"One of the things that is making these histories possible is a realisation by security intelligence agencies that if they don't provide access to documents, people will draw their own conclusions based largely on anecdotal evidence.
"There is a growing official acceptance that, as much as possible, it is better to open the files to academic scrutiny."
Fund covers a range of research areas
A total pool of $55.7 million in this year's Marsden Fund will boost investigator-initiated research in areas as wide ranging as science, engineering, maths, social sciences and the humanities.
Highlights of this year's round include projects that will investigate the use of robotics as therapy for cerebral palsy, using Google balloons to probe weather systems, why heart failure is common in diabetics and Maori legal traditions.
Marsden Fund Council chair, Professor Juliet Gerrard, said the fund, administered by the Royal Society of New Zealand on behalf of the government, encouraged our most talented researchers to explore their most exciting ideas.
Since the first funding round 20 years ago, funding had grown by 1000 per cent.
"The fund continues to be extremely popular with New Zealand researchers," she said.
"Last year we had a record number of preliminary proposals, 1157, and this year that was surpassed by 65, with the fund receiving 1222 applications, mostly from researchers at New Zealand universities, Crown Research Institutes and independent research organisations."
A subset of 248 proposals progressed to a second round, with 101 selected for funding for three years, making the overall success rate 8.3 per cent.
Since 2001, there had been two types of grants: Standard and Fast-Start, the latter added to support outstanding researchers early in their careers.
More than a third of the awards this year - 37 - were Marsden Fast-Starts.
"The Fast-Start scheme has been a hugely successful mechanism to enable emerging researchers to develop their own interests in the research community," she said.
Many Fast-Start recipients had gone on to head their own labs and make outstanding discoveries.
"In addition, we have seen strong career progression for PhD and post-doctoral researchers who have been funded through the Standard grants."
Professor Gerrard said that it is especially pleasing to note that the number of women as principal investigators of successful proposals rose from 32 per cent last year to 39 per cent this year.
Women and Maori principal investigators had higher success rates in the second round.
Professor Gerrard noted that all proposals were judged by ten subject-area panels, informed by international referees, and chosen purely on merit.
With the Marsden Fund celebrating its 20th anniversary, Professor Gerrard said it has been an ideal opportunity to reflect on how it has made a difference to New Zealand.
"Many of New Zealand's very best researchers have received Marsden funding in their career; people like Distinguished Professor Margaret Brimble, Professor Jeff Tallon, Professor Peter Hunter and the late Sir Paul Callaghan.
"The Marsden fund not only supports the development of research talent but also uncovers findings that can lead to whole new areas of research.
"Our 20th anniversary celebrations have been a good chance to reflect on basic research leading to developments that make a difference in areas you might never expect."
For example, Marsden research to study how a micro-organism uses hydrogen as fuel, has led to new research with implications for greenhouse gas emissions from dairy farming.
Another example was a Marsden project that studied the effects of local winds, which has led to new research to model areas for viticulture as the climate changes.
"By supporting New Zealand researchers to carry out fundamental research which they are passionate about, the Marsden Fund is helping to build a stronger nation, both economically and socially.
"The Marsden Fund is an investment in the long term success of New Zealand."
Science and Innovation Minister Steven Joyce said excellence in research was the key to New Zealand becoming a more innovative nation.
"The Marsden Fund invests in high-quality investigator-led research that generates new knowledge that will be of long-term benefit to New Zealand."
By the numbers
101 - research provided Marsden Fund grants
$55.7 million - total funding pool of this year's grants
1222 - grant applications recieved this year, of which 248 progressed on to second rounds.
39 per cent - of successful applications were led by female principal investigators
5.2 per cent - of successful applications were led by Maori principal investigators
28 - of successful applications were entered by the University of Auckland, the most of any institution. Victoria University had 25 successful applications, while the University of Otago had 22.
