Funded by Dubbo Regional Council and the NSW government, the work aims to enhance the visitor experience with interactive multimedia displays and a life-like interpretation to the cells.

Improvements will also be made to the signage, landscaping and infrastructure.

But first, Cr Shields pardoned the animatronics of prisoners Ronnie O'Neill and Thomas Frainor. The Gaol also said goodbye to gaoler Eric Gosper and deputy gaoler John McTaggart.

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The mayor said while the mannequins and animatronics needed to be updated, he understood there were residents who had an attachment to them because they had been at the gaol for so long.

The Thomas Moore animatronic was installed in 1988.

But a good home as been found for the mannequins. The Eric Gosper animatronic, which uses the gaoler's actual voice, will be donated to the Western Plains Cultural Centre, while his deputy will be donated to the NSW Correctional Service Museum.

Dubbo MP Dugald Saunders said remembered being petrified of the people in the cells when he first visited the gaol as a child.

"The expectations we have as a society now men it's time to move on and accept a more modern take on things while reflecting that very historic part [of the facility]," he said.

He said the CBD of Dubbo had been "as busy as anywhere" and the redevelopment would only boost visitors.

The gaol has about 50,000 annual visitors and Cr Shields said the development had the potential to be a "game-changer" for the CBD.

He said the way people shopped was evolving so the CBD needed to be a hospitality and visitor experience centre in order to survive.

The redevelopment work will be done by local company Omni Constructions and is expected to take 16 weeks to complete.

In total, 12 mannequins and animatronics will be removed from the gaol.