The Government has bought a 150-acre site on the Dublin-Meath border for a new prison complex, expected to be constructed in 2008.
The site, at Thorntown, Co Dublin, between Ashbourne and Swords, cost €29.9 million.
It will house a new male and female prison and ancillary services, and will replace the Mountjoy Prison complex, which will be sold.
There will be space on the site for a new Central Mental Hospital in Thorntown, and a decision has been made in principle to put it there, subject to further study.
The Minister for Justice, Mr McDowell, said that it was desirable that psychiatric services for prisoners should be close to where prisoners were, but the Central Mental Hospital was a therapeutic centre and would be separate from the prison. If a new Central Mental Hospital is sited at Thorntown, it will have separate access and a separate address.
The fate of the Central Mental Hospital in Dundrum has not yet been decided, and is under discussion between the Minister for Health, Ms Harney, and the Minister for Finance, Mr Cowen.
Mr McDowell said the existing women's prison, the Dochas Centre at Mountjoy, had become too small for current needs.
The new women's prison in Thorntown would be of as high a standard as the Dochas Centre, he said.
There was also a need for a new prison for younger offenders. St Patrick's Institution was too cramped, and had no athletic facilities, or even space for the inmates to play football.
The new prison would have in-cell sanitation as well as electronic doors and other modern facilities.
It would improve conditions for prisoners and prison officers alike, he said.
A final decision has yet to be made on the location of the new training unit and separate facilities for offenders, both male and female, in the 16-17 age group.
The new prison will have a perimeter security barrier and other measures to ensure drugs cannot be thrown or brought into the prison. It will be built by public-private partnership, at a cost depending on the tender. Much of the cost will be met by the sale of Shanganagh House, and the future sale of Mountjoy.
Mountjoy is regarded as a prime site for residential development, subject to the preservation of certain buildings for architectural and historical reasons. The execution shed, for example, where many of the founders of the State were executed, will be preserved and moved to Kilmainham Jail museum.
A consultation process with local authorities and relevant interests will now take place, according to Mr McDowell.
Referring to possible adverse reaction from local residents, he said: "It's in the open country. At the moment the land is agricultural, and is surrounded by agricultural land. It is part of north county Dublin that is off the beaten track."