The mural, which is expected to take four days to paint, will be featured on a former nightclub wall on Bath Street and created by local artist Tyler Kennedy.
Reactions to the Sheeran mural have been mixed, with Breakfast host Hayley Holt saying it will stop her from visiting Dunedin.
"I would like to say, this will stop me going to Dunedin, not because they are spending ratepayers money, but because I do not want to see a giant, giant mural of Ed Sheeran's mug," she said on Breakfast.
"He just tries to suck up to us by wearing All Blacks shirts, and now we're sucking up to him by putting up a giant picture of his mug."
Sheeran, who is known for his love of New Zealand, recently told radio station ZM that he has made inquiries about becoming a Kiwi citizen.
The singer is set to begin his New Zealand tour on March 24 in Auckland and perform in Dunedin on March 29, 31 and April 1.