The leased land is used by the supermarket, cafe, post shop and a bottle store.
"The plan will be a 'win-win' for the community and Trust House and will go a long way towards making Featherston a welcoming place for residents and travellers while boosting civic pride," Mrs Staples said.
The council had agreed in principle to develop the grassy Clifford Square to include a hard-surface town square which would help improve the area for all, she said.
"Going back to Anzac Day, we didn't have anywhere in Clifford Square that had a hard surface that could serve as a town square."
"We look forward to talking with our community about how it can be made into an asset that Featherston people can enjoy and be proud of.
"It will go a long way to improving the look of that part of Featherston."
Subject to ministerial approval, the council will trade the 2061sq m of land for Trust House's 2081sq m of land.
One resident at the meeting was keen to see the square completed for Anzac Day celebrations.
"That's a little bit of a short time," Mrs Staples said.
She expects it will take 12-18 months to complete everything required for approval, including public consultation tendering.
"We are a long way from putting any stakes in the ground."
She said remedial work would be carried out on the vacant land to make it tidier.
Mr Pollard said the new 900sq m supermarket complex would be built where the existing supermarket was.
The new cafe will be connected to the supermarket with an outdoor area seating 50 people.
The outdoor area will also have a glass wall to act as a windshield along with a new carpark.
The existing post office and Lotto shop will be a part of the new supermarket and there will be a new bottle store attached to it with a separate entrance.
Trust House is now calling for tenders for construction, Mr Pollard said.
About $2 million to $2.5 million would be invested in the project, he said.
Featherston businessman and Bell St resident Denis Taylor was delighted with the plan.
"This is just what Featherston needs ... unfortunately Featherston doesn't have a heart any more. Main street is shocking but hopefully something like this will liven it up a bit," he said.
A revitalised town centre would draw crowds, he said.
"It's ideal for Wellingtonians. The properties are cheap, the climate is great and it's such a quaint little place. It will give people a reason to stop here."
The township had received some bad publicity in recent years - which it hadn't deserved, he said.
"It has had a bad rap but it's a lovely place to live. The people here are fantastic and very friendly."
Mrs Staples also announced a plan to install security cameras in Featherston, Martinborough and Greytown.
The council would work with the Masterton District Council to install a monitored security system.
"Masterton are upgrading their security system and there is an opportunity to put monitored security cameras in all three towns."
Tomorrow: Featherston Crime Prevention community meeting.
