To many it is not in the least fanciful to describe Oxford as the Hollywood of children’s literature. With a list of greats stretching from Lewis Carroll, C.S. Lewis, J.R.R Tolkien to Philip Pullman, it seems that Oxford has always been the home of great storytelling — it’s just that storytelling has never had a proper home in Oxford.

The very idea of a museum devoted to story initially struck many as the stuff of make-believe. But Mr Pullman, whose books have always presented Oxford as a magical place where windows open into other worlds, was not alone in believing that if such a museum were created anywhere, it had to be here.

“The whole atmosphere of the city is rich with fantasy,” he will tell you. “The very idea of having a museum devoted to story is itself such a fantastical notion that no other city could give birth to it.”

But now we know that this is one fantastic notion that is to be turned into a reality, and in true storybook fashion, it’s all thanks to the sudden appearance of an anonymous fairy godmother, whose identity must remain a secret.

Best of all, the Story Museum is being created in the heart of the city, close to Christ Church, the Oxford college known to millions for its links to the real Alice and more recently to the Harry Potter films.

For the anonymous £2.5m gift has secured the three-storey Rochester House in Pembroke Street, on a site that would have been familiar to Lewis Carroll and should soon enough be known to 100,000 paying customers a year.

A public appeal will have to be launched to raise £11m to transform this crumbling building into a world-class visitor attraction and major teaching facility for schools.

Rochester House may be one of those Oxford hidden treasures, where you step from a narrow lane, lined with uncollected rubbish, through an unprepossessing doorway into a vast beautiful courtyard surrounded by buildings that have remained unseen for decades, but make no mistake it is presently in the sorriest of states.

Its grubby condtion hardly seemed to matter last week to Kim Pickin, the director of the Story Museum, when she took me on a tour of the 130-year-old Victorian Building, accompanied by Tish Francis, the former director of the Oxford Playhouse, who has joined the Story Museum team as co-director.

They, and many others, have waited a long time to find a home. Floors may be covered in pigeon droppings and walls with obscene graffiti, but for these two women it is just a question of applying a little imagination to see this derelict site, made up of three linked buildings around a courtyard, as a thriving “high-impact family experience”, as they point out where various galleries and attractions might go.

Rochester House, it turns out, has its own fascinating story, too, and Ms Pickin delights in the fact that the buildings have their roots in the Victorian era, when Oxford first became the focus of a golden era in children’s literature.

The site was originally developed by Merton College in 1899 for residential accommodation and for a while was home to the masters of Merton. Part of the building became a popular city centre pub, the Leden Porch Hall, with associated stabling. The freehold is, in fact, owned by Merton, with the Story Museum securing the site on a 130-year lease.

In 1921, the buildings were secured by the postmaster general, with major structural alterations and extensions built to accommodate a new telephone exchange. A three-storey extension was added in the 1930s as the size of the Oxford switchboard needed to be significantly increased. However, with the opening of a new telephone exchange in Speedwell Street in 1959, the building reverted to offices for the General Post Office staff.

Evidence of its former uses remain everywhere: a large Post Office staff canteen here, wooden pub floor there, college servants’ bedrooms above on the top floor. “Ideal for naughty children,” chuckled Ms Francis as we walked past a strong room with a heavy safe still in place at the far end and a notice saying ‘Bandit Alarm’ on the wall.

When the idea of a Story Museum was first suggested many years ago, the Oxford broadcaster and author Humphrey Carpenter urged that it should be “as magical as Alice’s rabbit hole and the wardrobe that leads into Narnia”.

He might have had this place in mind, for it is a veritable warren, with innumerable staircases, cubby holes, and large rooms offering beautiful views across Oxford’s snow-covered rooftops to the River Thames. “We still have not been in all the rooms, “admitted Ms Francis. “When we first acquired the building we were handed 183 different keys.”

Both my guides were anxious that the Story Museum will be a very different kind of project from the Oxford Story, the one-time visitor attraction in Broad Street, which, until two years ago, saw visitors carried mechanically on a journey through Oxford University’s history in time cars.

Here the story is, well, the story.

“The vision is to create a place where children can enjoy sharing and learning through stories and storytelling in many forms,” explained the museum’s director, who reckons there are 1,001 ways of experiencing stories.

Not only will youngsters get to listen to stories, they will walk through them, creating stories of their own, while literally being able to open windows and go through doorways into other worlds — an aim worthy of Aslan, Alice, Lyra and Harry Potter, you might say.

So, with potential for 20,000 sq ft of usable space, there will be galleries, performance spaces and a small theatre to be used for storytelling, puppet shows and visits by authors.

A feasibility study is to be commissioned that will investigate cost and the phasing of the development, but we can already expect an education room, a café, shop, offices and a free children’s gingerbread playhouse in the courtyard.

While Ms Pickin is determined that it should be an international centre, the world’s first to explore all aspects of storytelling, the city’s future museum should also celebrate Oxford’s unique contributions. And it is hoped some of the special collections will feature writings, treasures and memorabilia linked to the Oxford giants of children’s literature.

While it anticipated that the museum will eventually boost tourism and the local economy, Mr Pullman believes its contribution will go far beyond that.

“The Story Museum will be a wonderful gift from Oxford, where so many stories have begun, to the whole world.”

He is not the only big name in contemporary children’s literature to be a patron. Jacqueline Wilson and former Children’s Laureate Michael Morpurgo are both patrons.

It is hoped that the groundbreaking £14m centre will open by 2014, in time for Oxford’s bid to become Unesco’s World Book Capital. But an application has just been made to an arts funding body, in the hope of securing an early grant to create a small office, allowing the team to have an early presence in the building by June.

Yet, in some ways, the discovery and move into Rochester House is only the latest chapter in the Story Museum’s story, though the one surely entitled ‘The Dream Comes True’.

The idea was first put forward five years ago and for the last four years the Story Museum has existed as ‘a virtual entity’, although one achieving practical results on the ground by putting on outreach events and story days for tens of thousands of Oxfordshire children.

Some 30 schools across Oxfordshire have now signed up for the Storytelling schools project, where teachers learn to teach through stories. Parents are also involved in some of the schemes that have been piloted.

The importance of storytelling is now being taken up nationally, as worrying statistics continue to highlight the limited vocabulary used in everyday speech by youngsters, with the Government’s new adviser on childhood language development, Jean Gross, planning a national campaign to shop children failing in the classroom and the workplace because of their inability to express themselves.

In 2008, the Story Museum was commissioned to develop a regional strategy for child readers. It also received a central Government grant to pilot a programme for parents in Blackbird Leys.

Ms Pickin and her small team will have the perfect opportunity to spread the message about the extent of its ambitions during Storytelling Week, which runs from January 30 to February 6 “Even without a building we were making some real impact,” said the director, as we walked through the carriage gateway next to the post office in St Aldate’s, which is likely to become one of two entrances to the museum — the other being on Pembroke Street. But it was always like the children’s book publisher David Fickling said, “Children’s story has many travelling preachers — it needed a cathedral”.

It turns out that this new-found cathedral of storytelling had been earmarked for development as part of the large retail scheme proposed behind St Aldate’s by the Carlyle Group, which had acquired Rochester House. The proposal for new shopping, student accommodation and offices has now been scaled down.

Maybe the museum will stand as a monument to the fact that even economic downturns can have happy endings. But maybe that’s another story.