The Department for Transport will provide £48.5 million to upgrade ten bus routes into the city as well as creating a rapid transit bus service between Newbridge and Lambridge.
Other plans include a further 2,000 parking spaces for park-and-ride schemes, an extension of the Bristol to Bath cycle route and a retail distribution depot to remove lorries from the city centre.
Bath and North East Somerset Council cabinet member for planning, transport and highways Charles Gerrish said: "The park-and-ride spaces will help cut car usage, while the transit system will cope with the impact of schemes such as Western Riverside, which will create up to 3,000 homes."
The council will prepare a final bid by the end of next year. If this is successful, work could begin in 2009.