The two underwater floors will have an aquarium with glass walls that look out onto an underwater restaurant and the other 17 storeys will be built inside a cave at the base of the Tianmensham Mountain in the Songjiang District.
Guests at the Intercontinental Shimao hotel will be able to do watersports on the lake and use the cliffs for rock-climbing and bungee jumping.
The resort is expected to open in 2015 with 380 rooms, banqueting and conference rooms, as well as a swimming pool and sports centre. Rooms are expected to start from £200 a night.
The hotel has been designed by British-based firm Atkins and is part of the larger project to build Shimao Shanghai Wonderland, a large-scale theme park.