A draft brief of how the former St Saviour's Hospital could be turned into housing is out for consultation.
It outlines how the government-owned site, which has been abandoned for decades, should be used for affordable homes.
The former mental health facility near Queen's Valley Reservoir, which opened in 1868, includes Grade 1 listed buildings and protect open space.
Environment Minister Jonathan Renouf says it is a sensitive site, but that rising to the challenges of developing it will lead to housing, possible community uses and the renovation of important heritage buildings.
"The opportunity here is to produce a really first class scheme, that creates a community and makes the most of that extraordinary setting"
Last September the Chief Minister pledged it would be used for keyworker accommodation, housing for people with complex needs and to help islanders get on the property ladder.
In December 2021, the former Chief Minister John Le Fondre announced 200 homes could be created there and said there had already been preliminary talks with Andium Homes about developing the site for social-rented housing.
Deputy Renouf expects it would take in the order of 200 new homes, depending on the mix of units.
He says preserving the heritage of the former hospital raises challenges:
"It is obviously expensive to restore and repair and renovate historic buildings, and particularly to re-purpose them
That can be balanced with the return from developing houses elsewhere on the site, and they can cross-subsidise the redevelopment.
That is what the developer, which at the moment is Andium, will have to balance.
It is hard to say what kind of accommodation it will be, but the aim is to preserve as much of the historic fabric and character of the building as possible."
Islanders have got until 10 January to say what they think of the suggested guidance.
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