As well as a new entrance and car park on Gillies Street, the new building will include a tram exhibition space, completely separate from the current workshop, as well as meeting and function rooms.

The organisation, completely volunteer-run, is celebrating its 50th birthday in September, and is hoping work will be complete by then.

The new building is funded entirely by volunteers and the community, according to president Paul Mong, though more is needed to connect new tracks from the building to Wendouree Parade, and for the curated exhibitions inside.

For now, he said he's excited to see work get started.

"We started off with a little tin shed and we've been able to grow our collection," he said.

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"Over the last probably 20 years, our organisation has grown - our membership, our volunteers, but also our visitors, and we've basically outgrown our existing building, which wasn't designed for museum displays, it was just a maintenance shed.

"We need an area where we can showcase our collection, and display it in a safe manner for the public."

Designed and built by Ballarat firm MKM Construction - manager Stefan Pye added this project was the first time they'd built on Gillies Street, and after getting through various heritage approvals, "it's good to be a part of it" - the project could attract tens of thousands of tourists to the area.

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Museum project manager Virginia Fenelon said visitor numbers from the summer were almost double the average count of 30,000 people riding the trams and checking out the workshop each year.

"This is going to really attract a lot more attention, and the exhibitions will be professionally curated with graphic art designs and display boards," she said.

"We're up there with other Ballarat attractions, it's a very appealing activity for families with children during the school holidays, and during the year we get seniors and school groups, and you can also hire our trams for special purposes, like film people and the wedding tram."

The museum's collection - fully digitised and professionally archived - includes 150-year-old horse-drawn trams from Ballarat's past, as well as examples of trams from across Victoria.

A crew of 60 enthusiastic volunteers crew the trams around the lake, as well as getting stuck in with endless maintenance and restoration work.

"Our Tuesday and Wednesday work groups are pretty well Men's Sheds, we've developed them over the past four years, we've got a good dozen-odd people who come along each day," Mr Mong said.

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While finishing off the entire project is estimated to cost about $500,000, the museum is hoping this first stage will bring more visitors and revenue.

"We're in a key location here at the gardens, which attract half a million visitors per annum - if we can take a snippet of that, it'll be fantastic," Mr Mong added.

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