Trams have been running in Blackpool for 120 years
Blackpool's tram system, which carries four million passengers a year, has closed for five months for refurbishment.
The trams which run along the seafront to Fleetwood are being brought up to date, the Department for Transport (DfT) has said.
The £100m regeneration work started on Monday and should be completed by April next year.
New trams, replacement track and extra stops will be installed.
Passengers are being advised to use buses while trams are out of action.
Ministers say the scheme will build on the current regeneration of the town whilst improving access to the Fylde coast.
The tramway, which is owned by Blackpool Council, has been operating since 1885.
When the plans were approved in June, leader of Blackpool Council, Peter Callow, said it was a "great day for Blackpool".
"Blackpool has a fantastic tram heritage and this funding will ensure that our tram network has a great future too.
"By Easter 2012 we will have ultra-modern trams providing an efficient public transport network for both residents and visitors without sacrificing our wonderful heritage trams."