The store, on South Great George's Street in Dublin's city centre, will bring a huge range of interiors and lifestyle products to the family-run company's growing retail empire.
"It's going to be the most interesting and different homeware store in Dublin," said Mr Costelloe.
Ms Donnelly marked the new venture out as "a real destination shop for people coming into town who want something a bit more individual and stylish".
The pair's homeware ranges have been a massive success story for Dunnes, in branches across Ireland, the UK and Spain.
Mr Costelloe's new Living Menswear range for Dunnes Stores will also be available in the new store, as will signature pieces from the new Savida and Gallery ranges for Dunnes Stores which have been overseen by Carolyn Donnelly in her new role as creative director of the store group.