Kendal College will receive £1m from the North West Development Agency to buy brownfield land.
The purchase will enable the college to build a new facility and expand its curriculum. The Wildman Street site will be used for the digital and creative curriculum and form part of a wider regeneration of the northern end of the town.
The new development will form part of a campus embracing Kendal Museum, the 14th Century Castle Dairy and the Allan Building to create one joined-up facility.
The first phase includes a multi-purpose space for students studying performing arts, dance and music, facilities for sound, lighting and recording with workshops, changing facilities, toilets and reception.
This follows the college's development on its main site, which was completed in November 2008.