The proposals drawn up by Edinburgh City Council, the University of Edinburgh and architects RMJM include creating walkways and a public square in Potterrow.
The plans propose replacing a dual carriageway with a two-lane road, the construction of student housing behind the Festival Theatre and an overhaul of Bristo Square to feature paths, lighting and trees.
A consultation will be launched in the next few months and the work will be phased over ten years.
Council planning convener Jim Lowrie described the plans as excellent. "The building of the dual carriageway in the early 1970s was a mistake," he claimed. "It isolated part of the university and created a dead zone. Removing it and taking the area back to its origins will allow us to create proper streets and a mini square."
The scheme would continue the redevelopment that began with work on the university informatics centre, which is nearing completion in Crichton Street.
But university director of buildings and estates Angus Currie acknowledged that the developers must overcome various difficulties.
He commented: "It is going to be tricky to balance the reduction in road space and the desire to make the Potterrow area more pedestrian-friendly."
"We must also take into account the need to ensure that traffic keeps flowing and access to the main buildings in the area is retained."