There have been rumours for some time that the village was being demolished but these were finally confirmed after an image of broken up models was shared on social media.
Generations have visited the attraction on South Parade since it opened in the 1960s - and it was made famous in Brian Sadler's book, Big Joy of Small Villages.
But nostalgia doesn't pay for its upkeep - and owners Teen Spirit say they have been forced to make the tough decision about its future.
Charlton Cooper, a director for Teen Spirit which also owns Skegness Aquarium next door, said it was hoped the new dinosaur attraction would be ready by July.
"People are not interested in model villages anymore and since we took over the Model Village six years ago we have seen the numbers of visitors decline," he explained.
"Last year we spent a lot of money getting everything ready for the season and then had the season kicked out from under us.
"We have to move forward and already we have had a lot of positive response about our plans."
The new attraction will be an extension to the Skegness Aquarium ticket - and present an additional educational offer for schools. .
"We are maintaining the beautiful Model Village gardens and renovating the fountains, creating a dinosaur world where people can easily spend an hour before exploring the rest of the Aquarium," said Charlton.
"There will be a fossil dig, a five-meter-long, full size skeleton of a Triceratops dinosaur and crocodile models linked to the Jurassic age.
"Linking dinosaurs with the Aquarium experience was a natural progression through evolution. We will now be able to offer so much more for schools' curriculum as well as for our visitors.
"The recent news that the new London Resort theme park is including dinosaurs has confirmed we are moving in the right direction.
"It's going to be amazing."
John Byford, who took the photographed of the broken up models, said he understood it was time to move on.
"A lot of people feel nostalgic about the model visit but if you don't use it, you lose it - and that's what has happened here," he said.
"Dinosaurs have remained are hugely popular with children - I can remember collecting cards as a child and sticking them in a book.
"If there is an educational side to the attraction and it is linked to the Aquarium it can only be a good thing.
"It's also good to see local businesses investing in the town - I believe Skegnesst really is on the up."
However, some visitors are not so sure. Graham and Janet Smith, of Norwich, said they were shocked when they heard the "highly revered, loved and ancient model village has been destroyed". They praised "the young lady who had worked extremely hard to keep it open and respectable in these difficult times".
"We met her when we stayed nearby last summer and she was so dedicated to keep it going," they told the Standard.
"Skegness really needs these solid and dependable attractions to keep all generations interested." .