The 1.4-mile (2.3km) tunnel, between Bradford and Halifax in West Yorkshire, could be opened for £2.8m, said Queensbury Tunnel Society.
Highways England has said it could cost £35m to make it safe for future use.
The tunnel, last used by trains about 60 years ago, is partly flooded and has collapsed in some places.
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Campaigners in the village of Queensbury came up with the cycleway idea to encourage bike use.
It would avoid steep, busy roads and provide a direct link between Bradford and Halifax.
The Queensbury Tunnel Society's report said most of the tunnel was in a fair condition and could be repaired.
It would involve patching small areas, with concrete repairs to bigger patches of missing brickwork, said the report.
Defective brickwork would be replaced open joints re-pointed.
"Queensbury Tunnel has to be made safe, it does not have to be made perfect," it said.
Highways England is responsible for the tunnel as part of the Historical Railways Estate.
It said it was "open to the idea" of transferring the tunnel to another public body to maintain it.
It said a new owner could be offered the £3m estimated cost of closing the tunnel.
"An independent study commissioned by Highways England carried out earlier this year revealed the condition of the tunnel continues to deteriorate and that it would cost an estimated £35m to make it safe for future use," it said.
Work on closing the tunnel would begin next summer if a transfer cannot be agreed, it said.
Converting an abandoned railway tunnel into an underground cycleway could cost a tenth of official estimates, said campaigners.