The park at Wenffrwd is one of several projects being championed by the Green Recovery task and finish group given financial support from the Welsh Government.
Work has already started to clear the area.
Sir David Henshaw, who is leading the project, said: “Over what has been the most challenging of years, nature has played a pivotal role in helping to boost the emotional, mental and physical health of the nation.
“The approach of the Green Recovery Partnership demonstrates what can be achieved when collaborative action is taken.
"There is a collective commitment to propel the green recovery across Wales, helping to lay the foundations for sustainable and fair economic growth and deliver real and swift on-the-ground dividends for people and nature alike.”
Proposals were received from a cross-section of society including community groups, social enterprises, charities, public bodies, private companies and environmental groups across Wales.
The first phase of the 'pocket park' will be a small car park and new access road followed by trails around the park and leading to the canal. There could also be a link back into Llangollen.
Other plans for the Clwydian Range and Dee Valley Area of Outstanding Natural Beauty include funding for access improvements to Loggerheads Country Park aimed at reducing the impact of increased visitor numbers on the landscape and ecology of the area.