Lumsden stands to become the epicentre of the "Around the Mountain Rail Trail".
The trail was one of seven potential cycleways around the country that could be formed this summer in a $9 million initiative, the first allocation of the Government's $50 million cycleway fund.
The proposed trail, confirmed yesterday by Prime Minister John Key, would allow cyclists to ride on a 175km trail from Walter Peak Station, having crossed Lake Wakatipu, from Queenstown, on board the TSS Earnslaw.
The track would head through Walter Peak and Mount Nicholas Stations, and along the Von Valley, Lake Mavora.
It would then follow the Oreti River from Mossburn along the old railway line to Lumsden then up to Athol and Garston to Kingston.
Future cycle trails could be developed from Lake Mavora to Te Anau, from Lumsden to Invercargill and Bluff, and from Lumsden to Gore and the Catlins Coast.
Mayfly Cafe & Bar owner Sam Shirkey, of Lumsden, said he and fellow proprietors met three weeks ago to discuss business opportunities the cycleway could bring to their doors.
"Getting the accommodation up to scratch and having myself set up discounted meal deals on the rail trail [were ideas discussed].
"We'd probably need some specially designated accommodation, as the pubs are average. The railway museum could be dusted off and opened again."
Lumsden Motel owner Nigel Barrett said the trail could make a massive difference to the township if it was as successful as the Central Otago Rail Trail.
"We'd probably need to get a bit more accommodation if it turns into a big thing. No-one's going to go investing in the short-term until it goes ahead [but] there have been noises made of people looking at buying commercial property, which has got to be positive."
Kingston Community Association chairman Peter Gibson said the cycleway would "bring people south and construction will alleviate some of the unemployment".
The association had already forwarded plans to Queenstown planner Mike Barnett for a trail from Kingston to Fairlight via Allen Valley, and the Mountain Rail Trail would form a link.
Secretary Margaret Gibson said cycling was not a noisy or polluting activity and it was encouraging that the majority of users of the Central Otago Rail Trail were New Zealanders.
"There's the opportunity for little businesses to start up to hire bikes and bus people back to their accommodation," Mrs Gibson said.
Real Journeys chief executive Dave Hawkey said the company, which operates the vintage steamship Earnslaw and Walter Peak Station, was "very excited" about the initiative.
"It's opening up a part of the region which is relatively unexplored. Getting more people on the Earnslaw helps that excursion along and keeps it sustainable.
"Hopefully, it will be a catalyst for more economic development in the area," Mr Hawkey said.
Cyclists and motorcyclists were already welcome on the steamship, Mr Hawkey said.
It remained to be determined if visitors who wanted to hire cycles would do so in the resort or at the station, he said.
Cyclists on the proposed trail could take the existing gravel, public, Mt Nicholas Rd from Walter Peak and branch off to Movara Lakes after about 30km.
Department of Conservation (Doc) campsites exist at Movara Lakes and more than 2000 camp over the summer season.
The Mt Nicholas Rd continues on to State Highway 94 near Mossburn.
Doc Queenstown Regional Visitor Centre supervisor Andrew Evans said public access on the western side of Lake Wakatipu was limited to the gravel road between Glenorchy and the Greenstone Valley carpark.
