The project, located in the heart of the one of the capital's most well-frequented cultural quarters, was originally due to start in the summer of 2005, but was beset by funding problems.
But, after crucial cash was received from the Department of Culture, Media and Sport, the London Development Agency and the Heritage Lottery Fund, the plan to produce a new exhibition and gallery space, as well as research and study areas, will go ahead.
The scheme will add an informal walk-in studio cinema, which the BFI hopes will give visitors 'new opportunities to learn more about film and television'.
The main entrance and box office will be relocated to the east side of the building - opposite the National Theatre - and there will be a new bar and café in a new foyer space.
The development will open in early autumn 2006, bringing the BFI 'a step closer to its long-term vision of a purpose-built National Film Centre by 2012'.
A spokesperson for the NFT continued: 'This is a hugely significant time for the National Film Theatre as we work to improve the fabric of the building and transform the current space.
'It marks the start of our longer-term plan to create richer and more diverse opportunities for a wider audience to engage with film heritage and culture.'