Constructing a new experience for visitors at the Don River Railway could create 40 jobs and generate about $8 million of economic benefit for the region each year.

That is the outcome of a feasibility study into redeveloping the railway with a fully immersive and interactive rail museum, a range of experiences for children, tours, a new café and trips into the Devonport CBD and along the coast to Penguin.

The railway is calling for $17.2 million from the federal government to bring the vision to life following the results of the study.

Railway manager Eamonn Seddon said it was an extraordinary opportunity.

"In my experience, these railway projects are bigger than just the operation, they are part of the fabric of the local community," he said.

"That is certainly true of the Don River Railway, given what it's meant to the people of Devonport for many years. It's central to the experience of Devonport.

"It's already the biggest heritage railyard in the southern hemisphere boasting Australia's largest collection of steam locomotives.

"Importantly, it also provides work experience for the area's long term unemployed, as well as 80 regular volunteers."

West by North West chief executive Tom Wootton worked alongside the railway to facilitate the study.

He said it would create a travel trigger for Devonport and give tourists a reason to stay after arriving on the Spirit of Tasmania.

"Our interstate market testing suggests this redevelopment would double that visitation to around 32,600 passengers per year, each paying a higher price for the experience," he said.

"Then, when you consider those visitors will travel along the coast to Penguin and perhaps stay an extra night or two in the region."

Railway president Lynn Laycock said the cost of insurance and cooperation from TasRail had been considered.

"The Tasmanian government has already committed the first $2 million towards track and infrastructure upgrades and to assisting with insurance costs for the next six years," she said.