Microsoft will invest more than US$500 million (NZ$636 million) in its first major European datacentre, designed to support applications delivered over the internet.
Microsoft says the "mega datacentre" will be needed to support rising demand for web-based audio and video applications throughout Europe, the Middle East and Africa.
The centre will support services such as its MSN portal and Windows Live, a group of online services that include Hotmail, photo sharing, blogging and online storage.
Construction on the 550,000 square-foot facility, at Grange Castle Business Park in Dublin, will begin this month and should be completed by mid-2009.
Microsoft has been racing against more web-centric companies like Google and Yahoo to shift some of its business from software applications installed on computers to services that replicate many of the same functions but are delivered through a web browser.
To keep up with demand for the services those companies require large datacentres, often built in rural areas that have cheap and plentiful electricity.