Interior ministry spokesman Toomas Viks said construction would begin in 2018.
"The aim of the construction is to cover the land border with 100 percent, around-the-clock technical surveillance to create ideal conditions for border guarding and to ensure the security of Estonia and the Schengen area," he told AFP.
The announcement comes as regional tensions are running high over the crisis between Russia and Ukraine.
The Baltic states have been rattled by Russia's actions in Ukraine, where pro-Moscow separatists have been fighting Kiev's forces since April 2014.
Estonia, along with Latvia and Lithuania, emerged from nearly five decades of Soviet occupation in the early 1990s and joined NATO and the European Union in 2004 in a bid to boost their own security at a time of tension with Moscow.
The plan to build a fence along Estonia's eastern border with Russia has been in the works since last year, Viks said.
The 2.5-metre (eight-foot) high barbed-wire fence will span nearly 110 kilometres (70 miles) but will not cover the entire length of the border as marshland areas will be fence-free, according to Estonia's border guards.
It will be completed by 2019, Viks said.
"The information gathered by the technology can be used as evidence in cases of cross-border crime, be it illegal border crossing, smuggling (or) human trafficking," he told AFP.