The National Lottery Heritage Fund has granted £4m taking the total number to £13m.
The museum will tell the story of Britain’s first mass seaside resort and its place in the history of popular culture.
Scheduled to open in March 2021, 'Show Town: The Museum of Fun and Entertainment' will be situated on the promenade, near the Tower.
Sited in the redeveloped Sands building, Show Town is expected to attract 296,000 visits annually, deliver 39 full-time jobs and provide £13.16m of regional economic benefit.
The project will cost a total of £12.6m, which will come from the council.
As well as £4m from the Lottery Heritage Fund, the museum has also received £4m from the Northern Cultural Regeneration Fund and £1.5m from a government growth fund.
The new museum will house over 100,000 items of the town’s collections, featuring Britain’s first permanent displays of circus, music, variety and ballroom dance.
Items include those belonging to some of the biggest names in British entertainment, such as Stan Laurel’s hat and suits belonging to Morecambe and Wise, who considered Blackpool their spiritual home.
The museum will work in partnership with the V&A, which in 2008 first started talking about lending some of its vast store of unexhibited items in a Blackpool outpost.
Also on show will be some of the 40,000-strong Tower and Winter Gardens archive and key pieces from the Illuminations Collection, which tells the story of the annual extravaganza of lights.
A likely highlight will be a collection of “saucy” postcards stamped “approved” or “disapproved” by the Blackpool Postcard Censorship Board, and an exhibit explaining how the Rolling Stones became from the Empress Ballroom.
It is part of a huge regeneration project, which will soon see the opening of the first five-star hotel in the resort since the 1960s and a state-of-the-art conference centre next to the historic Winter Gardens.
Cllr Gillian Campbell, Deputy Leader of Blackpool Council, said: “This is fantastic news, it’s the final piece in the jigsaw and now our dreams can become a reality.
“It has been six years since I first sat down with council officers and discussed the concept of a museum celebrating Blackpool’s rich heritage and its unique place in the nation’s heart.
“We did not want to just create a display of Blackpool’s history, we aspired to do something completely unique that you would only experience here.
“Thanks to the effort and expertise of our volunteers and supporters and the commitment of hard-working council officers we finally have an amazing concept that is financially viable.
“The official launch of our plans will follow in the autumn.”