The derelict Cane Hill asylum site will finally be redeveloped in a £250m housing project the size of 100 football pitches.
The Greater London Authority (GLA) has reached an agreement with Barratt Developments to redevelop the former mental hospital site.
Proposals for the site include 650 homes, with half being family homes, and up to 70,000sq ft of commercial and retail space. Cane Hill is of great historical significance to Croydon.
The Cane Hill Asylum treated patients with mental illnesses and during the First World War helped soldiers badly affected in the trenches.
These soldiers were buried in a mass grave but were moved to the Mitcham Road Cemetery in 1981.
The Croydon Guardian ran the Honour Our Fallen Heroes campaign in 2009 to remember the forgotten soldiers and have their names added to the Debt of Honour.
The hospital eventually closed in 1992, and was earmarked for demolition.
In 2010, a fire ravaged through the derelict building and virtually destroyed it.
A spokeswoman for Barratt Developments said: “We are in the very early stages of planning the Cane Hill development and are aware of the history of the site.
“We will be working with the relevant authorities and the community to ensure any graves found are approached sensitively.”
The aim is to submit a planning application within a year and secure planning by mid-2014.
Cane Hill is one of the most sought-after redevelopment opportunities within the M25, with a gross development value of about £250m.
Croydon Council leader Councillor Mike Fisher said: “The site of the former Cane Hill Hospital provides an exciting opportunity for Coulsdon and the rest of the borough to benefit from the redevelopment of this substantial and strategically important site.
“Although details have yet to go through the planning application stage, we look forward to working with our partners to craft an exciting and sustainable residential-led scheme that will provide a much-needed boost to Coulsdon town centre.
“We have worked well with our partners and the community to produce a draft masterplan to guide this major project and we will complete this process over the coming months now Barratt is on board.”