The company will use a £5 million regional prize it won in the Bank of Scotland's Corporate £25 million Challenge to build a distillery at its Herefordshire farm as part of plans to build a sustainable business.
"It's a nice way of using the potatoes and it's quite nice for us to be able to diversify," said a Tyrrells spokeswoman.
The distillery will have the capacity to produce 100,000 bottles a year and the first bottles are expected to be distributed next summer. Part of the winnings will be used to build an advertising and marketing campaign around the spirit.
There are no indications yet where the vodka will be sold, but the brand values will be similar to those of Tyrrells' established products.
"We thought the vodka was in keeping with our target audience," added the spokeswoman.