Phase one of the project will take 10 weeks to complete and will see demolition of the rear function room of the Ship and Anchor pub.
An old library building will also be knocked down and a new car park built.
Pembrokeshire council also wants to create a one-way system, footways and a public transport hub, with work starting later this year.
The master plan includes a new link road, retail units and the demolition of buildings, including the derelict Fishguard Junior School, on 1.5 hectares (3.7 acres) of land.
Councillors hope it could encourage further investment in the town.
Work has begun on plans to alleviate traffic congestion and regenerate Fishguard town centre in Pembrokeshire.