The 104,000 pounds museum will be established at an old toilet block in Monument Gardens on Southgate in the town of Sleaford.
The Sleaford Museum Trust has received money from UK's Heritage Lottery Fund (HLF) to set up the museum.
The museum, which is due to open in January 2015, will tell the story of Sleaford through historic artifacts collected by the trust.
A trust spokesman said it would give the collection, which had led a "wandering life" since being started in the 1970s, a permanent home, 'BBC News' reported.
Vanessa Harbar, head of HLF East Midlands, said the town has "an important history and this project involves innovative ways for celebrating it through the re-use of a redundant building".