A new 40-kilometre cycling and walking trail proposed for the Yarra Valley would establish a continuous off-road loop throughout one of the state's most popular tourist playgrounds.

The new trail would run from Lilydale to Yarra Glen, Yarra Glen to Healesville, and from Healesville across to an existing rail trail near Woori Yallock.

It would run close to Yarra Valley tourist drawcards such as the Healesville Sanctuary, Yering Station winery and other popular wineries, Yarra Glen Railway Station and TarraWarra Museum of Art.

A feasibility study on the trail has estimated it would generate 210,000 visitors per year, more than $30 million of annual economic benefit and more than 220 jobs.

A report recently prepared for Yarra Ranges councillors said the project cost was $10.6 million.

The trail would create a continuous off-road circuit through the Yarra Valley of at least 60 kilometres, starting and finishing at Lilydale, by linking up with the Lilydale to Warburton Rail Trail.

Cyclists could extend their journey by about 17 kilometres further east, to Warburton, along the existing trail, before returning to Lilydale.

Yarra Ranges councillors have backed the project, and council consider it a "priority".

"There is no need for a car and the trail will provide a convenient day trip to the Yarra Valley and Dandenong Ranges and its well-established wineries and food destinations, significant National and State Parks and the Healesville Sanctuary Zoo," the report said.

"The trail will encompass spectacular vistas of Christmas Hills and the Dandenong Ranges providing a unique recreation and cultural experience for the local community and visitors."

Robyn Mansfield from the Yarra Ranges Council said the trail would be a major drawcard.

"It's another opportunity for us to escalate the Yarra Valley as a premier tourist destination and something that is also going to support our local residents," she said.

Importantly, the trail would give locals another way to move around the district, she said. "It's a very car-dependent area out there. So it also provides a lot more opportunities for the local residents to become more active and be more connected with their local area."

Simon O'Callaghan from Yarra Ranges Tourism said the project would build on other nature-based Yarra Valley experiences.

"What we're really excited about is that this trail creates a loop that will encourage overnight stays. And a lot of travellers on international bike trails are looking for mid-week travel as well, which is really important for us" he said.

Bicycle Network CEO Craig Richards strongly endorsed the proposed trail.

"This is a great project that would not only let locals explore their own backyard by bike, but also further open the area up to tourism," he said.