It would be fair to say that Leeds Museum Service has had a bit of a bumpy ride over the last few years. Failed Private Finance Initiative and Heritage Lottery Fund bids put the redevelopment of the art gallery on hold for years, directors have come and gone, and a major restructure have all taken their toll.

But there is light at the end of the tunnel. The art gallery reopened after a £1.5m refit in June, the Discovery Centre opened to the public the month after, and a new website is on track for September. The new museum space is back in the hands of staff and it is now on schedule for an August 2008 opening.

These days, £1.5m is not a lot to redo a large art space, especially when there is major structural work involved, but Leeds seem to have managed to make every bean count.

The external frontage remains the same, but it is clear as you approach the entrance that much has changed. To begin with there are a couple of friendly meet-and-greet staff ready to dispatch information and usher you into the gallery.

The entrance gallery has been transformed. Before it was a dark and cluttered space, crammed with domineering art and spoilt by a ramshackle shop selling tatty postcards and books.

The previously muddled space is now clean, bright and open with carefully chosen artwork and sculptures dotted precisely around and designed to lead the eye down the length of the gallery. It looks and feels like a welcoming place of contemplation where there is plenty of room to see beautiful things.

After this great initial eye-opener comes the splendour of the Victorian tiled hall. It had been the twinkle of many a director and local politician's eye to unite the three buildings that sit on this stretch of the Headrow (the library, gallery and Henry Moore Institute) into a cohesive whole, but so far none had succeeded. Until now, that is.

The tiled hall was formerly a boxed-in and boxed-off library space. False ceilings, walls and shelves have been removed to reveal the aquamarine, mustard-and-green tiles, which are complemented by the original parquet floor. The hall now holds the cafe and shop and provides a much more appropriate space for both.

Opposite, and on the other side of the entrance gallery, is a new temporary exhibition space. In stark contrast to the ornate Victoriana of the tiled hall and the minimalism of the entrance gallery, the exterior of this new space is covered with a huge Paul Morrison monochrome landscape where trees are taller than flowers and you get the impression that magic is at work.

Which makes it an appropriate opener for the Fairy Tale exhibition, showing the work of six contemporary artists inside.

The masterstroke of the redevelopment though is the rehang. Jeremy Lewison, a former curator from Tate, was brought in to advise; and although there were some heated differences of opinion along the way, the results is, on the whole, amazing.

Following the long gallery down to the end Antony Gormley's Earth Above Ground and Frank Dobson's Fount stand guard at the entrance to the Ziff Gallery. The hang is roughly chronological, but it also has themes, some looser than others.

So in the Ziff Gallery, to which you are drawn by the tantalising sight of the Sognefjord by Adelsteen Normann, the work is mainly that of the 18th-century Romantics. But slap in the middle of the gallery floor is one of Richard Long's stone circles, a startling contrast to the rest of the work in the room it looks as if it could have been hewn from the rock sides of Normann's fjord. The link, of course, is seeking inspiration in nature.

Next door there is more temporary exhibition space that leads through to Art Space, a planned hands-on gallery which, finances permitting, will open in 2008. At the moment it is filled with Astro turf, tents and camouflage netting courtesy of design students from Leeds Metropolitan University.

There are some gloomy bits that have barely been touched here at the back of the galleries (a job for another day and another fundraising campaign, says the director John Roles), so it is a relief to come back round to the sculpture galleries. These spaces have also been redisplayed and curated by staff from the Henry Moore Institute next door.

Each of the three spaces uses the extensive sculpture collection and some loans to explore contrasting themes and subject matter. Ordinary People looks at figures and figure groups and the subject provides for a real contrast of styles and media from Peter Deri's coloured concrete figures to Leslie Thornton's abstract bronze Gladiators.

The Wonder and Horror of the Human Head looks at the decades of the 1950s and 1960s when the memory of the second world war was still fresh and the spectre of the nuclear threat was looming. There is little colour in the gallery and the dark sculptures and black and white photographs create a sombre mood.

So far, so good, but did the money stretch as far as the upstairs galleries? Yes, in the sense that the rehang continues and that a much-needed lick of paint has been applied. On this floor access to the library has also been opened up.

At the top of the stairs, Memory Loss and Trauma explores the first world war and its aftermath. Turning back at the head of the stairs a huge photograph of the third battle of Ypres sets the tone; the soldiers are dwarfed by the hostile and denuded landscape.

Not all themes strike home so well. Women Are From Venus looks at how feminism has affected the portrayal of women in art - an interesting idea, but it feels like it's be done before and there's nothing to break the mould here.

Other displays include a gallery dedicated to still life, including a whole wall of flowers. No doubt this will be controversial, the 30-odd paintings contrast in style, size and framing are hung from knee level up and not in rows. It's an engaging approach and provides a contrast to other works in the room.

The job at Leeds is obviously not yet complete. But what has been achieved, on a comparatively small budget, is a refreshed and much more accessible experience.

Project data

Cost: £1.5m
Main funders: Leeds City Council, Yorkshire Forward, Wolfson Foundation
Architects/designers: Leeds City Council
Rehang consultant: Jeremy Lewison
Contractors: JW Taylors, Harrogate, Heritage Tile Conservation Ltd, Shropshire