The BTM received $200,000 in state government funding on Friday to create interactive displays and hands on activities, including a model tramway and offerings for children.

Ramps and wheelchair access will be installed so everyone can experience riding on an historic tram, and there will be audio tours in English and Mandarin.

New display booths will be added for temporary exhibitions and virtual reality technology will allow visitors to learn more about trams in an immersive and engaging way.

The tramway museum's new facility at Lake Wendouree's South Gardens opened in April after more than a decade of planning and fundraising.

The tramway museum's volunteer members fully funded the construction and fit out the new museum and will contribute $100,000 to this next stage.

BTM project manager Virginia Fenelon said the upgrades at the museum would be completed by May, while some interactive activities would be ready at the end of the year.

The upgrades are the last stage of the museum project and the BTM will become one of the leading transport museums in Australia.

"Rather than having just a static display of trams and interpretive panels, the second stage of BTM's museum project is to create a contemporary museum that is not only informative but also fun to visit," Ms Fenelon said.

"The next step is to have interactive exhibits that let visitors, adults and children, engage with the items and activities on display.

"Immersing people in exhibits is an effective way to convey a story or an idea and, with the aid of new technologies, visitors are provided with an opportunity to use all their senses when experiencing the items on display."

The second stage of the project will create up to 17 construction jobs.

BTM president Paul Mong thanked the state government for its support, which he said had helped set the tramway museum up for the future.

"Our infrastructure was failing, our facilities were poor, accessibility was poor. These are all things we have been working on in the past to try and improve," Mr Mong said.

"Now that we have built this facility, we have replaced the track, now with accessibility onto the trams, it really makes it a tourist attraction of many generations to come."

More than one kilometres of tram track along Wendouree Parade, originally laid in 1905, has been replaced over the past three months.

Trams are expected to be back in operation by mid-August, Mr Mong said.

A return tram ride along the foreshore of Lake Wendouree forms part of the museum ticket.

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Member for Wendouree Juliana Addison said the funding for the BTM was made through the government's regional tourism investment fund.

"The Ballarat Tramway Museum is a time capsule of Australian history and this development will further cement Ballarat's position as a great regional tourist destination," Ms Addison said.

"This investment will help encourage people to spend more and stay longer in the region, which is a big win for Ballarat.

"Ensuring the Ballarat Tramway Museum is accessible for visitors and making it fun for kids will mean more visitors, more jobs and more spending at local businesses."

The BTM has been operating for more than 50 years and aims to preserve the tramway experience that existed on Ballarat's streets from 1887 to 1971.

Tramway museum is made up of volunteers, who staff the facility and carry our restorations works on the trams. The BTM has recruited 10 more volunteers, taking the total to 70 volunteers.

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