What is believed to be the nation's biggest ever yarn bombing project has been unveiled in the small town of Holbrook near the border of Victoria and NSW.

The town raised money to buy the submarine when it was decommissioned by the Royal Australian Navy in 1995 to honour its namesake Lieutenant Holbrook.

HMAS Otway has been covered in yellow knitting squares to celebrate 50 years since the Beatles toured Australia.

The yellow submarine project was the brainchild of Murray Arts which put the call out for contributions of yellow knitting earlier this year.

Thousands of craft enthusiasts from across the region, interstate and overseas responded, sending packages filled with knitted and crocheted squares of yellow wool.

The general manager of Murray Arts, Karen Gardner, said it is impossible to estimate the amount of yarn that has gone into transforming the submarine.

"There'd be millions and millions of stitches involved... you can't even imagine the amount of hours people would have spent on it," she said.

Holbrook: Volunteers layout yellow knitted patches for the yellow submarine yarn bombing project ( ABC Goulburn Murray: Nick Fogarty )

Town suffering effects of Hume Highway bypass

The idea to yarn bomb Holbrook's submarine was initially designed to attract visitors to the town, almost a year after it was bypassed by the Hume Highway.

It was the final town between Sydney and Melbourne to be bypassed as part of the project.

Greater Hume Council tourism officer Kerry Wise said she hopes the project will mean people keep visiting the town.

"You may not drive through anymore but you can stop off, the facilities are still as good as any around the area," Ms Wise said.

"There's still motels here, there's coffee, we're still open for business."

The submarine will remain yarn bombed until July 12.

The wool will then be cut up into blankets and donated to animal shelters.

A yarn bombing project in Holbrook has transformed the HMAS Otway into a yellow submarine. ( ABC Goulburn Murray: Nick Fogarty )

Contributions from as far as Scotland

It took the town a week to sew the pieces together and wrap the 90-metre long submarine with the help of a cherry picker.

Ms Gardner said it now looks like a ray of sunshine.

"There's some amazing pieces - there's a group that has sent one group down from King Island and they had stitched all these beautiful little shells into their piece," she said.

"I'm looking at a big piece right now that someone has stitched yellow submarine on which is just fantastic, it's really big and then there's some really beautiful intricate little pieces as well."

Pieces were also sent from family members of people who had served on the submarine in honour of their loved ones.

One of the artists involved in the effort, Libby Alexander, said they were delighted to receive a string of knitted bunting from the town in Scotland where HMAS Otway was built.

"On the individual triangles there's an anchor and the symbol of the Scottish naval fleet from where the submarine was made," Ms Alexander said.

"It's very special for that to come all the way over from Scotland where this little baby was born to now be hanging off the submarine."