Its investment will provide the extra capacity needed to cater for the forecast doubling in passenger numbers to 8m each year over the next 25 years.
The job will see two new platforms constructed on the west side of the station for use by trains travelling on east-west routes, freeing up the existing platforms for north-south services.
Platform 3 will also be widened and a new platform added for future London-bound high-speed services from Peterborough.
The main station footbridge will be updated and extended to serve the new platforms, with lifts providing step-free access between the station entrance and all platforms for the first time.
In addition to the new platforms, platforms 2 and 3 will be extended to facilitate future 12-car Thameslink services, which will provide direct connections from Peterborough to London and destinations across the South East.
Platforms 4 and 5 will be extended in readiness for future Intercity Express services, which will provide new trains on long-distance routes to the north of England and Scotland.
A new goods loop will also be created to the west of the station to increase freight capacity on the key cross-country route from the port of Felixstowe to the Midlands and beyond.
Work has started to clear the land to the west of Peterborough station in preparation for major works to be carried out starting in April 2012. The project will be completed in December 2013.
In addition to this £43m project, work funded by East Coast and Network Rail has already begun on a £3m scheme to provide a brighter, bigger entrance and a larger concourse at the station.