The Ministry of Defence hopes the Tempest will be flying by 2035, alongside the RAF's fleet of F-35Bs.
Announcing the programme, Gavin Williamson said: "It shows our allies that we are open to working together to protect the skies in an increasingly threatening future - and this concept model is just a glimpse into what the future could look like.
"This will deliver up to £2 billion of investment up to 2025 and help secure the long-term future of our combat air industry as we lay the groundwork for the Typhoon successor programme.
"[This] news leaves industry, our military, the country, and our allies in no doubt that the UK will be flying high in the combat air sector as we move into the next generation."
Chief of the Air Staff, Air Chief Marshal Sir Stephen Hillier said: "Team Tempest demonstrates our commitment in ensuring that we continue to build our capabilities, draw upon our experience and history to bring forward a compelling vision for the next generation fighter jet.
"In last 100 years, the RAF has led the way and today's announcement is a clear demonstration of what lies ahead."
One of its manufacturers, BAE Systems, who also built the F-35B have outlined what key features will be in the Tempest.
They say the payload-range, speed and manoeuvrability will be key for the Tempest and that the system will be equipped with a range of sensors including radio frequency, active and passive electro-optical sensors and advanced electronic support measures to detect and intercept threats.
The manufacturer also says the aircraft is likely to operate with kinetic and non-kinetic weapons and that the use of Laser Directed Energy Weapons (LDEW) for self-defence and combat within visual range is also "highly likely".
The ability to deploy and manage Unmanned Air Vehicles (UAV) which will 'swarm' to assess 'dangerous Anti-Access Area Denial environments'.
BAE say the future fighter jet will be "highly flexible" so it can be deployed in a variety of roles.
The Tempest will be able to change its systems depending on the mission, with 'role fit' additions such as low observable conformal fuel tanks.
The system will use an approach known as 'plug and play' - allowing new hardware to be integrated more easily.
Technology on board the Tempest will also be able to provide a number of different 'modes' for unmanned operations, such as being controlled like a drone, as well as being able to aid a pilot whilst flying.
The manufacturer says this can "enhance survivability, availability, cyber resilience, and tactical options".