Benn's Friends, working in partnership with the council and ward councillors, has been awarded the grant by SITA Trust to push ahead with plans to improve the play area at the park in Craven Road.
New play equipment set to be installed includes swings, a roundabout, see-saw and slide, with the £45,650 grant also earmarked for landscaping work to improve access to the park.
In addition to the improvements funded by SITA, the council has created a number of raised beds at Millennium Green to expand the town's edible gardening project, which encourages residents to grow fruit, vegetables and herbs in community plots in partnership with Rugby Edible Action Partnership (REAP).
The raised beds have been supported with a £1,500 grant from Warwickshire County Council's councillor grants fund.
The latest funding for the revamp comes hot on the heels of a £10,000 grant from the Government's Pocket Parks programme in March.
The grant was awarded by the Department for Communities and Local Government to create a new mini multi-use games area at Millennium Green, complete with basketball and football facilities.
Amber Merrick-Potter, secretary of Benn's Friends, said: "We're delighted work has started on a fantastic refurbishment of Millennium Green.
"It has been a real community effort, with Benn's Friends working with Rugby Borough Council's parks team, the Benn Partnership Centre and ward councillors Maggie O'Rourke and Alan Webb.
"Three years ago this was just a community dream and we're overjoyed at what has been achieved."
Cllr Maggie O'Rourke said: "This has been a community-led initiative, with a range of different partners working together to achieve a wonderful community facility for local residents and their children."
The council has confirmed plans to rename the park Whistance Millennium Green, in memory of the late ward councillor Brian Whistance, who played an instrumental role in the creation of the park at the turn of the century.
Cllr Lisa Parker, Rugby Borough Council portfolio holder for environment and public realm, said: "We've worked closely with Benn's Friends throughout this project to both draw up the plans for Millennium Green and secure funding for the improvements.
"SITA Trust has supported a number of our projects to improve the borough's parks and green spaces in recent years, and I'm delighted the trust has again backed our work with a generous grant."
SITA Trust awards funding for environmental projects through the Landfill Communities Fund.
Marianne Ivin, of SITA Trust, said: "This small but very valuable green space in Rugby town centre will hopefully become a hive of activity once the play park has been revamped.
"We're really excited to to see how the local community will enjoy the new and improved space."
Work on the Millennium Green improvements has now started and looks set to be completed by the end of June.