The scheme, which will see the work on Bond End start in March this year, has been approved at a meeting of Executive Members of North Yorkshire County Council.
The problem-junction was designated as an Air Quality Management Area in 2010, and since then Knaresborough residents have been calling for action.
The two mini-roundabout scheme was one of three options which were assessed using traffic models throughout 2017, to reduce congestion and improve air quality.
But a report by the Bond End Steering Group recommended that the scheme be implemented, after it was reviewed as having the most 'overall benefits'.
Councillor Don Mackenzie, NYCC Executive Member for Highways said: “We were pleased to approve the unanimous recommendations of the members of the Bond End Steering Group who are all elected members at either County, Borough and Town Council levels.
“I am now anxious that the junction upgrades are carried out quickly so that we begin to address the problems of vehicle emissions and poor air quality for the many residents of the Bond End area.
“We are mindful of the concerns about safe access for householders living hard by the junction and I am sure that our officers will address those anxieties as we prepare for these works.”