Commissioning of the kiln is expected to take place in 2022.
Lynas CEO Amanda Lacaze said the kiln was the longest lead time item for the company's Kalgoorlie cracking and leaching plant.
"The project is progressing to schedule and we look forward to working with Metso Outotec on the engineering and supply of the kiln," she said.
Lynas is the second largest producer of rare earths outside China.
Metso Outotec has more than 1,300 installations of its rotary kilns worldwide.
The companies will work together to develop a rotary kiln system for the Kalgoorlie plant.
The plant will process concentrate from Lynas' Mount Weld mine and provide an intermediate feed for further processing to produce neodymium and praseodymium, which are key elements used in high-tech consumer electronics and green energy technologies.
Metso Outotec minerals business area president Stephan Kirsch said the company was excited to have been selected as a key supplier for Lynas' Kalgoorlie plant.
"Metso Outotec's rotary kiln system forms an integral part for the processing of rare earths," he said.