Two thirds of the attraction were damaged in September after the river Ouse flooded, leaving it unfit for operation.
Owner Merlin Entertainments is investing £2m to repair the venue, which holds corporate events and is a sister attraction of the London Dungeon.
The renovation begins this week in preparation for a re-opening in Easter 2013.
The revamped dungeon will bring 2,000 years of York history to life through 11 scary shows, stunning effects and new activities.
Helen Douglas, general manager of the venue, said: "Recent times have been especially challenging. We would like to thank the local community and businesses for their support. When we re-launch York Dungeon next year we are taking things up a level. By creating new scripts that are funnier than ever and more authentic styling, we want to ensure the York Dungeon is better than ever before."
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