The Govan-born former Manchester United boss cut the first sod for a new 12-bed wing for the Kilbryde Hospice in East Kilbride, South Lanarkshire.
Sir Alex helped Glasgow businessman James Mortimer raise funds for the wing through the Donna Mortimer Ballantyne Charitable Trust.
The trust was set up after Mr Mortimer's daughter, Donna, died from skin cancer.
All the money raised by the trust has been donated to the hospice to fund the 12-bed wing, costing £3.5 million. It is scheduled for completion in a year.
Sir Alex joined Mr Mortimer's other daughter, Christine, and board members of the hospice and the trust on site to signal the start of work.
City Refrigeration entrepreneur Sir Willie Haughey and his wife Susan donated £317,000 towards the construction of the hospice through the City Charitable Trust which they set up.
Dennis Gallagher, Kilbryde Hospice chairman, said: "It is a fantastic benefit to the hospice to have a public figure such as Sir Alex take the time out of his busy schedule to come and give us support. It lets people see the importance of this project.
"Sir Alex has actually been a local resident in the past, in East Kilbride, so he is a man who remembers his past and where he has come from. He has been supportive of the hospice for many years.
"It has taken us 10 years to get the money to build this and it will take a year to complete.
"We now need to fund the operational activities of the hospice and that could stretch to anything up to £2m."
Work got underway to on the hospice in August.
The new £3.8m unit, behind the existing Hairmyres Hospital, is scheduled to take 12 months to build.
When completed, it will house the existing day hospice at the Red Deer Centre, giving this service and the at-home services already provided by the Kilbryde Hospice room to expand.
All Kilbryde Hospice services are provided for free to those with cancer and other life-limiting illnesses, such as motor neurone disease, MS or Parkinson's disease, with support also provided to patients' family and carers.
The hospice project was launched by the late Tony McGuinness, who worked tirelessly for over a decade along with Hairmyres Hospital surgeon John Richards to get it off the ground before his death in January 2011.