The 35-ton granite commemoration is being put up in a square in Gonggar county on the edge of Tibetan capital Lhasa, and is reported to be the biggest of its kind, Chinese state media reported on Monday.
The square itself was partly financed by donations from the central Chinese city of Changsa, where Mao's hometown of Shaoshan is located.
Gonggar's deputy Communist Party secretary - who gave his name only as Daindar - said many Tibetan people suggested that a statue of Chairman Mao be built "to show our gratitude for the people of his hometown".
China has claimed Tibet as part of its territory for centuries, and its forces occupied the region in 1950.
After a failed uprising nine years later, the Dalai Lama - Tibet's spiritual leader - fled into exile along with thousands of his followers.
Since then, China has enforced tight military controls on the region, and Beijing remains sensitive to any sparks of Tibetan nationalism or separatism.