Horsefair and the surrounding area is set to be resurfaced and given new landscaping, seating and lighting, with construction set to begin this summer.
Wakefield Council said the project will improve the route for pedestrians and cyclists and encourage people to travel between the two landmarks.
Around £1.5m worth of cash was formally accepted from the West Yorkshire Combined Authority (WYCA) for the plans on Tuesday.
Councillor Matthew Morley, portfolio holder for transport, said: "This will act as a catalyst for the regeneration of the Pontefract area, by improving the connectivity between the town centre and the castle.
"The scheme will encourage active travel on foot, by bike and by using public transport.
"The scheme is exactly the kind of thing we want to do across the district.
"I want to reassure everybody it will be very respectful to the historical significance of the castle.
"It will really connect the two and I think it's going to be a very exciting scheme for Pontefract."
Built in 1070, Pontefract Castle is one of the most historic local landmarks and it is thought to have been where King Richard II died while imprisoned, in 1400.
Gary Blenkinsop, the council's service director for the environment, said: "The Streets for People project will see a transformation of the streets connecting Pontefract town centre and the Castle, with improvements planned along Horsefair, Finkle Street, Mickelgate and Castle Garth.
"The work includes enhancement of footways, cycle provision, seating and lighting as well as the introduction of greening through a landscaping scheme. No properties will be demolished as part of this scheme.
“There will be an opportunity for everyone to see the final design in the near future, with works expected to start in early summer.”
Meanwhile a pedestrianisation scheme for Ropergate, in Pontefract, will go ahead in May, it was confirmed on Tuesday.
The idea was publicly mooted last year by the council leader, Denise Jeffery, so that restaurants and cafes could put tables outside during the summer months.
Exact details of how the street will be fenced off to traffic are yet to be revealed.
Local Democracy Reporting Service
This article has been corrected to say the works will be likely to start in the summer, and not next December as was previously reported.