It is to improve access and traffic-free routes for walkers and cyclists on a three-mile stretch between Skipton and Bradley.
It is to also link Skipton town centre with the Snaygill Industrial Estate, said the Canal and River Trust.
Nick Smith, for the trust, said the work would be a "real boost" for all who use it.
There have been complaints about the condition of the towpath along this stretch. It is currently in a poor condition, muddy with little stone or hard surfacing, said the trust.
This makes access difficult for many users and the towpath is little used in winter.
The Leeds and Liverpool Canal is Britain's longest man-made waterway. It was used to carry coal, limestone, wool, cotton, grain and other farm produce.
It is now primarily used for leisure boating, walking, angling and cycling.
Building the waterway started in 1770 and was only finally completed in 1816, some 46 years later. It is 127 mile (204 km) long.
There are to be some diversions on the towpath during the work, that is to last about 14 weeks, said the trust.
A £450,000 resurfacing of the towpath on part of the Leeds and Liverpool canal in North Yorkshire has begun.