It will go live by 2011 and will use more than 200,000 processor cores, more than a petabyte of memory and more than 10 petabytes of disk storage.
"Blue Waters will be an unrivalled national asset that will have a powerful impact on both science and society," said Thom Dunning, NCSA director and a professor of chemistry at Illinois.
"Scientists around the country simulating new medicines or materials, the weather, disease outbreaks, or complex engineered systems like power plants and aircraft are poised to make discoveries that we can only begin to imagine."
While petascale computers already exist they are being used almost exclusively by the military, usually for explosives or weather research.
IBM, which makes nearly half of the world's top 500 supercomputers, is calling the architecture for the new machine Productive, Easy-to-use, Reliable Computing System, or PERCS.
The company has designed new processors, interconnect technology, operating systems, compiler and programming environments to make it possible.
"Our relationship with Illinois, NCSA and their partners throughout the country will help deliver an extraordinary new system," said Dave Turek, vice president of supercomputing at IBM.
"The work to come on Blue Waters will usher in a new era in supercomputing, ultimately providing a powerful new platform for scientists, engineers and commercial users."