The Scottish Government has approved the £48m first phase of the Royal Edinburgh Hospital Campus development.
NHS Lothian has received government approval of the outline business case (OBC) for the first phase of development.
Phase one will feature a new facility that will provide services for the adult acute mental health inpatient service.
The plans also include a geriatric mental health assessment unit, intensive psychiatric care service and new Robert Fergusson national brain injury unit.
NHS Lothian chairman of the Royal Edinburgh Hospital project board David Small said construction work may start later this year.
"The next step in the process is the development of the full business case, which we anticipate submitting for Scottish Government approval in September this year," Small said.
Scotland Health Secretary Alex Neil said: "The new campus, which is part of the Scottish Government's £750m investment in health infrastructure across Scotland, will also see efficient use of energy, water and waste management to reduce costs and carbon emissions."
NHS Lothian said works to prepare the site for the new facility will start this week.
Works in the project include the removal of shrubbery, trees and other debris, the demolition of the recently vacated Scottish Ambulance Service building, as well as the development of a therapeutic garden activity area.
The redevelopment of the hospital site will be undertaken in partnership with Hub South East Scotland, which has appointed Morrison Construction as the preferred contractor for the first phase.
The redevelopment project will be carried out in phases, each one subject to planning consent.
Phase one is expected to be finished in 2016 and the entire project will take about ten years to complete.
Image: The first phase of the project will feature three new facilities. Photo: courtesy of NHS Lothian.