The Ministry of Justice said the two-year expansion programme at HMP Nottingham will see its capacity double.
A spokeswoman said: "The £95 million is for building a new accommodation block creating space for 260 new prisoners and also modernising the existing buildings, creating space for an extra 250 prisoners."
The work will more than double the prison's capacity - which was put at 550 as of October 2006.
HMP Nottingham opened in 1890 as a city gaol but was reconstructed in 1912 and until 1997 it served as a closed training establishment for adult males.
In 1997 it re-rolled as a category B local prison and serves the courts of Nottinghamshire and Derbyshire.