Aimed particularly at visitors to Beamish Museum, Hotel 52 and the Pazzo restaurant in Stanley has been established in a disused care home on Joicey Square.
The venture was originally to become a community hub and apartments. However, consultations with Durham County Council and Visit County Durham highlighted a shortage of hotel accommodation in the area.
The site comprises 23 bedrooms, a licensed restaurant, a coffee lounge and meeting facilities.
It is the second in what is planned to become a chain of reasonably priced, boutique hotels being established by All Saints Living. The first, in Whitley Bay, has enjoyed huge success since opening in July.
Hotel 52 has also created 20 jobs.
Hotel manager Natalie Forrest said: “This is an exciting new venture which will not only address the need for hotel accommodation but also create employment opportunities for local people.
“The restaurant will also become a destination for people in the area to enjoy.”