An application for a distillery and visitor centre at the site in St Leonard's Lane has been accepted.
The Holyrood Park Distillery will be Edinburgh's first single malt whisky distillery since Glen Sciennes closed in the 1920s.
It is scheduled to open its doors to the public in 2018.
It will initially produce 53,000 litres of alcohol per year, for about 140,000 bottles of mature single malt in eight to 12 years time.
City of Edinburgh Council has approved the proposal.
It is a joint development by David Robertson, former Master Distiller for The Macallan, and Rob and Kelly Carpenter, founders of the Canadian branch of The Scotch Malt Whisky Society.
It will employ 25 staff.
Mr Robertson, said: "After years of hard work, our team's dream of bringing single malt whisky distilling back to Edinburgh is set to become a reality.
"We worked closely with local residents and businesses to build a proposal that will benefit the local community as well as Edinburgh as a whole.
"Work will start later this year and throughout 2017 and by 2018 we hope to be producing beautiful, hand-crafted spirits at our world-class distillery and visitor experience in the heart of Edinburgh."
Single malt whisky distilling is a step closer to returning to Edinburgh after a 90 year absence after plans were approved to develop the Engine Shed.