In 1978, Newton-John became an internationally-claimed actor when she played Sandy Olson opposite John Travolta, who played Danny Zuko, in the high school musical film.
The all-black outfit - which the actress famously had to be sewn into – marked Olson's transition from prim and proper school girl to sex symbol in the motion picture.
The jacket and trousers are being sold separately but together are expected to fetch up to $200,000 (£158,818), Julien’s Auctions said.
The garments are among more than 200 costumes, gowns, accessories and personal items owned and used by Newton-John to be auctioned in a bid to raise money for the Olivia Newton-John Cancer Wellness & Research Centre in the star’s hometown of Melbourne, Australia.
Other Grease memorabilia up for grabs include Newton-John’s original script from the film, which is expected to fetch up to $4,000 (£3,150), and a Grease 10-times platinum award, expected to be sold for up to $2,000 (£1,575).
A custom-made Pink Ladies jacket, which was presented to the actor by the cast and crew of Grease, is also expected to be sold for up to $4,000 (£3,150).
The auction also includes the 1950s-inspired pink lace gown Newton-John wore to the film's premiere in Los Angeles.
Martin Nolan, executive director of Julien's Auctions, described Newton-John as a "pop culture phenomenon".
Nolan added that her "extraordinary career - that includes her starring role in Grease, one of the most successful Hollywood films and soundtracks of all time - and her recordings of some of the biggest pop singles of the 20th century make her more than just a star".
The auction is taking place in Beverly Hills and online on 2 November and will follow exhibitions of the items in Ireland and the US.
Newton-John first revealed that she would be selling the Grease costume in May 2018.
“I’ve decided it’s the right time to do some good and auction them off to benefit the Olivia Newton-John (ONJ) Cancer Wellness & Research Centre in Melbourne, Australia,” she told 9Honey.
“It’s exciting to know that the costume will have a bigger purpose. Grease changed my life, and now it can help change the lives of others too.”
The 70-year-old actor was first diagnosed with breast cancer in 1992 and privately overcame a relapse of the condition in 2013 before founding the ONJ Cancer Centre – a cutting edge facility that provides a range of services for cancer treatment, education, training and research including a wellness centre to support the mind, body and spirit.
In 2017, Newton-John was diagnosed with stage four breast cancer for a third time and later revealed that she was in the midst of treatment in March 2019
While doctors say the star’s condition is incurable, it can be managed through treatment, and Newton-John recently admitted to using cannabis to help her cope with the pain she experiences as a result of the cancer.
“It has helped incredibly with pain maintenance and sleep,” Newton-John told People.
“It’s an amazing plant, a maligned plant, but it’s helping so many people."
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