Glasgow-based BDL Management, who manage Ramada and Holiday Inn Express, are building the accommodation in the hope of capitalising on the energy sector off the west coast of the island.
The company has a £6.5m RBS funding package behind it.
Work is under way at the development near Brae and the hotel, with bar, restaurant and gym, is due to open next autumn.
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The main contractor is Northern Ireland-based McAleer and Rushe.
Subcontractors from Shetland will also be used.
The hotel, which will bring the equivalent of 30 full-time jobs and 10 part-time housekeeping posts, will house workers from Total's £500m gas plant at Sullom Voe.
Stewart Campbell, BDL managing director, said: "We have had a long standing relationship with RBS and have had some quite successful projects in the past. But we would not be building a 100-bedroom hotel in Shetland if we did not have the commitment from Total to make it a viable project.
"There will be plenty of work for local subcontractors in the building phase and we hope local people will use the gym, restaurant and bar."
Lesley Stark, director for client coverage in Glasgow at RBS, said: "This is a significant deal which we hope will have a huge positive impact on the local community on Shetland."
(NE)
