The Heritage Lottery Fund is to give £3.7m to transform the Oxford Castle site into a heritage centre.

The use of Lottery money to fund the bulk of the £5.5m scheme will ensure that one of Oxford's most historic sites will be reintegrated into the city centre.

An estimated 70,000 people a year will visit a new museum, an education centre and large new public square.

The Lottery bid was submitted by the Oxford Preservation Trust, which expects the Castleyard Heritage Centre to open by the end of next year.

Trust secretary Debbie Dance said: "This is a truly wonderful opportunity. For years people have wanted to have access to the Mound and St George's Tower. Now they can, thanks to the Heritage Lottery Fund. We hope the site will be visited by every local child at some point during their school years.

"To be able to create a new public square, the Castleyard, against the backdrop of the two towers and the Mound will be stunning. We are convinced that it will become a popular meeting place with its cafe, and with theatre and other outdoor events taking place there."

A striking glass bridge will link the 18th-century Debtors' Tower with the neighbouring hotel, which is due to open next autumn. A novel mirror device will allow visitors to view it both as a modern hotel and Victorian prison. A tunnel will provide access into the Norman crypt and the site where the first teaching in Oxford reputedly took place when Geoffrey of Monmouth was imprisoned there.

Extensive restoration work to the 11th-century tower, one of the most impressive Norman structures in England, will allow public access to the tower top, offering spectacular views across the city.

Most of the remaining cost of restoring historic buildings will be met by developers who are transforming the neighbouring Victorian prison into an 87-bedroom hotel. The trust will launch an appeal to enable the Castle Mound to be open to the public.

Tess Hilder, South East England regional manager for the Heritage Lottery Fund, said: "One of the fund's priorities is to ensure that our heritage is opened up to everyone.

"The repair and restoration of Oxford Castle and Prison will ensure that this site of national heritage importance will not only be conserved and enhanced, but it will also allow a wide audience of visitors to enjoy this previously hidden site."

Ms Dance said the aim was not to recreate history.

She said: "Our job is to bring these buildings alive. The tunnels under the prison buildings leading to the crypt have an atmosphere of their own.

"There is real feeling of being back in the 12th century. To be able to give the site to the city and tell its history is incredibly exciting."

The Heritage Lottery money is the second major grant to Oxford in recent weeks. In the summer a £15m Heritage Lottery grant was earmarked for the Ashmolean Museum's £50m scheme to double its exhibition space.