Lamborghini, which is owned by Volkswagen, said Italy had beaten a bid from Slovakia to build the car there.
Reports say the sports car maker received â‚¬90m ($98m; Â£64m) of tax breaks and other incentives from the government to produce the car in Italy.
Executives from Lamborghini joined the Italian Prime Minister Matteo Renzi at a signing ceremony in Rome.
The Urus SUV was unveiled as a concept car in 2012 and is expected to go on sale in 2018, with a planned production level of 3,000 cars a year.
That will more than double production at Lamborghini's factory near Bologna and is expected to create 500 jobs.
Other car markers have been attracted by the strong growth and in the SUV market.
In January, Jaguar Land Rover said it would build its first Jaguar SUV at its Solihull plant in the West Midlands.
And in February Rolls-Royce, owned by BMW, also announced plans to launch an SUV.
Lamborghini confirmed the launch of a sports utility vehicle (SUV) and signed a deal to build the car in Italy.