Contractors are to flatten five derelict buildings and construct new homes on the land just behind the city's busiest shopping street Fishergate.
But the work will be monitored closely by archaeologists because of the location's significance in the history of Preston – and the possibility it could contain unmarked graves.
The city council called for a full programme of investigations when it passed the planning application to develop the site and create 67 houses and apartments in February 2021.
Now the London-based applicants, Zimrock Ltd, have submitted a report detailing how they plan to carry out a recording programme of all the buildings on the site prior to demolition and then allow a watching brief by archaeologists when they begin to dig foundations for new homes.
The Grade II Listed orphanage was built in 1872. Five years later the hospital was added.
Of the six buildings within the site, only the distinctive 1912 chapel and tower will be retained to form part of the housing project.
Mount Street Hospital, where entertainer George Formby died in 1961, was closed in 1982. Thousands of Prestonians were born there.
The original orphanage, which later became a care home, was shut down in 2007 leaving the entire site unoccupied.
It is hoped some of the historic features on or in the buildings will be preserved during demolition.
But it is underneath the ground where archaeologists are keen to look when work on building three new apartment blocks and 10 townhouses gets underway.
They want to discover what, if any, archaeological remains are buried below the site which might give historians a clearer idea of what was on the land prior to the 1870s and give clues to the medieval and post-medieval development of Preston.
The archaeologists will have the power to pause excavation work if it uncovers anything interesting, time which will allow experts a chance to examine and record finds before the scheme continues.
All machine excavation work will be done under close supervision to minimise any potential damage to buried features.
But in the case of human remains, the entire project will be halted if any bones are found to allow statutory investigations by police and scientists.
"In the event of human remains, both inhumations and/or cremations, are exposed then all works are to cease immediately and the local police and Coroner be informed," says a document submitted to the council on behalf of Zimrock.
"The area will be screened from view and discussions will be held with the client and the local planning authority on options for their appropriate reservation in situ or for their removal in accordance with professional standards and guidelines once the antiquity of the remains has been suitably proven."
Any items considered to be treasure must be reported to the Coroner. And the owner of the site will be encouraged to donate all historic “finds” uncovered by the work to a local museum.