A Double Fairlie locomotive, Josephine was one of the first steam locomotives operated in the Dunedin area, entering service in 1872.
The new interactive "information station'' includes more than 1000 high-quality old photographs and many video clips, some showing comments by retired railway staff.
The new information facility invites visitors to view the different railway lines that used to run around Otago and celebrates the much bigger role once played by the railways in Dunedin and Otago.
Exhibition developer William McKee said the Otago railway system peaked in the early 20th century, between 1900 and 1910, when more than 100 trains a day left the Dunedin Railway Station.
At that time there were more than 200 railway stations throughout Otago as the railways opened up the region, providing access to many far-flung places, including the station at Kingston, beside Lake Wakatipu.
He believed the museum's railway interactive display was the only one of its kind in the country, Mr McKee said.
Also included in the powerful new display is a smaller screen which gives information about Josephine and other early Otago railway engines, and the nearby railway yards.
The museum's northern foyer is on the site of the second of three successive main railway stations built nearby over the years.
The third and most elaborate of the stations is the current Dunedin Railway Station, designed by George Troup, and the only one to survive.
Mr McKee said the information station had taken three years to develop and showcased "some of the best photographic collections in the province'', including those from the Rockliff and Emerson families.
Animation Research Ltd was the project's main contractor and Dunedin Railways was the main sponsor.
"The railway community has been really generous in helping us achieve this,'' Mr McKee said.
Railways was once one of the main employers in Dunedin and and a "key part of our social history''.
"Hopefully, this will help tell that story to our visitors.''
