The $150m (£94m) outpost will be placed near the country's capital Santiago in a move that will create up to 20 jobs.
Google explained that it chose to expand into the South American territory due to its growing tech sector and skilled workforce.
"Chile... fosters an atmosphere of innovation, and in recent years has developed cutting-edge policies and programmes that encourage the growth of the internet," the company said in a statement.
"As with all of our facilities around the world, we chose Quilicura, Chile, following a thorough and rigorous site selection process, taking many technical and other considerations into account including location, infrastructure, workforce, reasonable business regulations and cost."
The project will provide Google users in Chile with a more reliable service, as well as boost the local economy.
Google has previously set up data centres in the US, Finland and Belgium, and is planning to establish several throughout Asia over the next year.
Its Chilean centre is expected to be completed by the end of 2013.