It will focus on linking the High Street to the Esplanade, down Charlotte Street and Nicol Street.
Work is due to start on Monday, and will be carried out by local contractor, Gilmartins.
And while it gets underway, plans are in hand to stage a consultation on Volunteers Green - the only green space in the town centre which remains under-used, but comes with a long history.
Fife Council slams couple who painted front door Ukrainian yellow
Cyclist taken to hospital after crash on A92 in Fife
Fire crews tackle blaze at disused Kirkcaldy school
Roads flooded in Fife towns as region hit by thunderstorms and Met Office Yellow Alert
in Pictures: These P1 school photos from 1994 will spark many memories
It all forms part of the long-term aim of capitalising on a waterfront which turned its back on the High Street several generations ago.
The project was driven by former councillor Neil Crooks, in his role as convener of Kirkcaldy area committee.
Now the baton has been picked up by his successor, Councillor Ian Cameron.
He said: “Over time the town centre has turned its back on the coastline, but this project will once again capitalise on one of the town’s greatest assets – its views.
“We hope the improvements will encourage more use and give better opportunities to create a bustling waterfront with a retail offering, events and information on the views across the Forth.
Cllr Cameron believes the waterfront still has potential to tap into for the benefit of the town centre.
This phase continues on from the work completed between Merchants House and Tolbooth Street and is the next step of the £1.6m Council and Scottish Government Place Based Investment-funded project.
Natural stone finishes will be used to match the existing streetscape on the High Street and those used in phase one.
Added Cllr Cameron: “Feedback has been very positive and supportive of the plans to further develop the waterfront so that we can help it reach its full potential, and continue to attract investment in the town.
“The first phase included a new road layout between Tolbooth Street and High Street junction, reducing the Esplanade to a single two-way road with the remaining space providing on-street parking, and features to encourage more use of the outdoor space around key building such as the Kings Theatre.”
The work is scheduled to take one year to complete.