The three-story, 36-room Bicycle Street Inn & Suites is slated to open in May in the historic downtown of the popular tourist destination.
It replaces the demolished 120-year-old McNally Cottage bed and breakfast.
Bicycle Street Inn & Suites is the island's first hotel development since the Main Street Inn and Suites was built about a decade ago.
The island, located in Lake Huron between Michigan's Upper and Lower peninsulas, is dominated by the 125-year old, 385-room Grand Hotel.
"Mackinac Island is a very popular place, but the number of visitors doesn't really change much year-to-year. It hasn't in 30 years or longer," said Mark Alexander, Bicycle Street Inn & Suites marketing and advertising manager. "They are going to get a million visitors a year no matter what."
The island is a favored site for conferences and boasts a quaint and vibrant downtown. Cars and other motor vehicles are prohibited.
The McNally Cottage demolition pushed island officials to start the process of creating historic preservation districts to protect older buildings.
Mackinac Island — a National Historic Landmark — was placed on a watch list in 2008 by the National Park Service due to concern over commercial development.