
The 36bn naira (£140m, $233m) project will remove silt from hundreds of miles of the river - Africa's third-longest.
The government says it will bring communities together and secure the flow to hydro-electric plants.
Activists have previously said the dredging could damage the livelihoods of villagers along the river.
The BBC's Chris Ewokor, in Abuja, says the project has been in the pipeline for four decades, but has been put off by successive governments.
At the signing-off ceremony in Lokoja, President Umaru Yar'Adua said the dredging - which is expected to take six to eight months - would ensure "all-year-round navigability".
"It will provide an attractive, cheaper and safer means of haulage of goods, while engendering linkages and promoting trading activities between adjoining communities," he said.
About 572km (355 miles) of the river will be dredged - from Baro in central Nigeria to Warri in the Niger Delta.

Officials are also concerned that the silt build-up is limiting the amount of electricity generated by the Kainji dam in north-western Nigeria.
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