The allocation to Parramatta Council, for its tourism strategy Parramatta Stories, was promised by the ALP during last year's federal election campaign and was applauded by Lord Mayor Paul Barber.

"The new investment means that Parramatta will be able to consolidate its position as a major highlight of Sydney's tourism industry,'' Cr Barber said.

Federal MP Julie Owens said with Old Government House and the Domain in Parramatta Park nominated for World Heritage listing, the project would capitalise on the city's projected future growth and help develop it into a first-class tourist gateway.

The 10-year Parramatta Stories project will have three stages, the first of which receives the funding to create an "outdoor living museum'' through stories and interpretation of its rich and diverse cultural heritage.

The "living museum'' concept involves a series of themed trails linking key heritage sites across the city including Old Government House, Elizabeth Farm, Hambledon Cottage and the Female Factory precinct.

Each of the sites is under the control of a range of authorities including the National Trust, which manages Old Government House, the Historic Houses Trust which manages Elizabeth Farm, Hambledon Cottage which is leased to the Parramatta and District Historical Society by the council and the Female Factory precinct which is under the control of the heritage branch in the Department of Planning.

"Parramatta's outstanding heritage value is largely unknown in the wider community due to lack of interpretation, hidden stories, promotion and the poor connectivity between the sites,'' Cr Barber said.

The project will link each site and tell a different part of Parramatta's story offering a variety of recreational, culinary, cultural and leisure experiences.