The Canadian government has agreed to provide photonic quantum computing company Xanadu Quantum Technologies with up to $140 million toward a $643 million manufacturing project in Toronto.

The conditionally repayable contribution will come through Canada’s Strategic Response Fund and cover no more than 22.1% of eligible costs for Project Optimism. Canada-based Xanadu is responsible for the remaining project costs and any overruns, according to a funding agreement filed with securities regulators.

At the center of the project is Inception, a 158,000-square-foot Toronto site that Xanadu is transforming into a research, development, and manufacturing facility for photonic quantum computing components.

Xanadu intends to use the site to manufacture, package, assemble, and test the hardware needed for fault-tolerant quantum computers. The company said the facility would help it build a vertically integrated supply chain, from individual photonic chips to modules ready for installation in data center server racks.

Inception is expected to include clean rooms, specialized photonics manufacturing equipment, and continuous test and measurement facilities. Planned capabilities include wafer-level semiconductor testing, photonic integrated circuit packaging, and heterogeneous integration, a process for combining components made from different materials or technologies into a single chip or package.

The facility is expected to integrate specialized equipment and tooling from ASMPT, Bluefors, DISCO, EVG, FiconTEC, and MPI. It is also expected to house Xanadu’s Systems Integration and Operation Centre where quantum modules will be assembled, tested, and verified before being installed in server racks.

“The launch of Inception is a defining strategic milestone for Xanadu and the broader quantum industry,” Xanadi CEO Christian Weedbrook noted in an announcement. “We believe that this investment ensures that Xanadu remains at the forefront of the field, providing the infrastructure necessary to transition quantum technology from the lab to commercial-scale data centers.”

Project Optimism has total projected costs of $643 million. The federal contribution is capped at the lower of $140 million or 22.1% of eligible supported costs, and the government may withhold up to 10% until the project and its final reporting have been completed satisfactorily.

The agreement defines the repayment period as 20 years, although the detailed repayment terms and schedule were redacted from the public filing.

The agreement requires Xanadu to complete the project by March 31, 2031, and conduct the work in Toronto. It also includes commitments covering Canadian research and development spending, high-skilled employment, and collaboration with Canadian research institutions and small and medium-sized businesses, although the numerical targets were redacted.

The federal funding represents roughly half of the government support discussed when Xanadu announced Project Optimism in March. At the time, the company said it was negotiating with the Canadian and Ontario governments for up to $281 million in combined support.

The latest announcement finalizes the $140 million federal portion. Xanadu did not announce a definitive agreement covering the proposed Ontario funding.

Xanadu said the manufacturing capabilities developed through the project could also support telecommunications, AI hardware, sensing, and other semiconductor-based technologies. The Toronto company is developing room-temperature photonic quantum computers and PennyLane, an open-source quantum software platform.