Work is expected to begin this summer and the production process could start next year.
The man who helped set up Noble Grossart, Scotland's first modern merchant bank in 1968, moved to Skye four years later.
He bought 20,000 acres of Skye, plus a hotel at Isle Ornsay for a reported £120,000. These had been part of Lord Macdonald's estate which were being sold to meet death duties
Once on the island Sir Iain quickly made his mark. He was instrumental in the founding of Skye's Gaelic College Sabhal Mor Ostaig in a farm steading he had bought on the Sleat Peninsula. But Sir Iain had also earmarked a similar building for development as a distillery.
He had set up Gaelic Whiskies (Praban na Linne) in 1976, using other distilleries to produce his special recipes for the malt Poit Dhubh, and blends Te Bheag and MacNaMara.
The distillery he dreamed of will be housed in the listed early 19th Century farm steading at Torabhaig not far from the college. It will become Torabhaig Distillery, a subsidiary of Mossburn Distillers.
It will cost more than £5 million and employ eight people as well as becoming Skye's second distillery., sharing the island address with the world famous Talisker at Carbost. In spite of Diageo and Pernod warning over slowing sales in China recently the creation of another distillery is another vote of confidence in the Scotch whisky sector.
Mossburn was set up last year specifically for the project by Neil Mathieson, its chief executive. He has been managing director of Eaux de Vie and Marussia Beverages, the Dutch-based specialist spirit producer and distributor.
He said his family in Edinburgh knew Sir Iain's and he had first talked to him about the distillery over 10 years ago, and continued to do so until Sir Iain's death in December 2010 aged 75.
Mr Mathieson said: "Torabhaig is our first entry into the Scotch Whisky category and a very important starting point," he said. "Skye is renowned all over the world for its natural beauty and cultural heritage and we believe that Torabhaig will be a valuable contribution both to whisky distilling on Skye and to the island's continuing attraction to international visitors."
He added: "It's a perfect location for a small, traditional distillery and we look forward to working with the local community to bring our plans to life."
The Torabhaig site formed part of Sir Iain's lands of Fearann Eilean Iarmain. Sir Iain's widow, Lucilla Noble has been invited to join the Board of Torabhaig Distillery Limited.
She said: "Iain long ago recognised the great potential of the Torabhaig steading as the perfect site for a distillery on the Sleat peninsula and worked hard towards that objective. I am very pleased that this ambitious redevelopment is about to be started and that his vision will become a reality."
Plans for Torabhaig are being drawn up by Edinburgh architects Simpson & Brown, who specialise in conserving important historic structures as well as designing award-winning contemporary buildings.
"The design of the new distillery will reflect a commitment to quality and to the best values of the industry we are joining," explained Mr Mathieson. "Torabhaig will be very traditional and a sympathetic transformation of the existing farm steading. Simpson & Brown had previously looked at this site for Sir Iain Noble so there is an appropriate continuity."
Planning consent has been granted for Torabhaig and it is expected construction work will begin in the early summer. It is anticipated that the first new spirit will flow from Torabhaig by the end of 2015.