The Shifnal Integrated Transport Scheme was approved by the authority's cabinet at a meeting on Monday.
The initiative, which has been in development since 2013, aims to address the mounting burden placed on the town's infrastructure by significant housing development in recent years.
It includes plans to ease congestion and slow vehicles down as they approach the junction joining Aston Street, Victoria Road, Bradford Street and Market Place.
It will also include realigning and increasing capacity at key junctions, resurfacing of roads, landscaping and tree planting, pavement improvements and new street furniture.
The £2.7 million project is being delivered using developer funds through Community Infrastructure Levy (CIL).
The proposals will go before full council next year to be voted on due to the cost exceeding £1m, but council leader Peter Nutting said he would "be surprised if there are any changes made".
Councillor Nutting added: "It is something that is desperately needed in Shifnal in light of recent and upcoming developments."
Steve Brown, the council's head of transport, said: "The improvements to the town centre and public realm will enhance the existing infrastructure, by improving and in some areas reducing traffic flow and creating a more pedestrian friendly area, that can be utilised for community events and support local businesses.”
Mr Brown said the scheme has been supported by the council’s highways and transport department and Internal Infrastructure Group, Shifnal Town Council and the town’s unitary councillors.
It comes after Shifnal's representatives on Shropshire Council hesitantly welcomed the move.
Councillor Ed Bird, who represents Shifnal South. said despite various objections he was pleased the town would finally see "significant investment".
Meanwhile, Shifnal North representative Councillor Kevin Turley said he felt Shropshire Council should be contributing funds to enhance the project – which is "nowhere near" the original plans put to residents.
Mr Brown added: “This project will address demands development has placed on the area by improving the local town centre in respect of its public realm, aid the safety and comfort of pedestrians across a range of demographics, and improve the layout of its key highway junctions to support the scheme.”
The initiative has been scaled back from initial plans made public in 2015 after it was accepted that there would not be enough funding to cover the estimated £3.5 to £4 million cost.
In January this year Shropshire Council presented two alternative proposals to the town council, and after receiving feedback put forward a third option at a town council meeting in October, winning the support of members.