The Ladder School has been given the green light to create a new facility on land which used to be home to Shannons Mill, in George Street, in the town centre.
A separate plan to extend the existing Walsall Studio School – which sits on the same site – by building a new two-storey teaching building was also agreed at the Walsall Council meeting.
Both schools belong to the Mercian Trust and representatives said it would enhance the education of the pupils and regenerate a key gateway into the town centre.
The Grade II-listed Shannons Mill was destroyed in a blaze back in August 2007, caused by a suspected arson attack.
The site has been fenced off and remained mostly empty since but the hoardings have become a target for graffiti vandals.
As well as the new Ladder School building, a multi-use games area will be built on site and 38 car parking spaces created.
The free school caters for children aged 13 and 18, with a range of needs and who are at risk of exclusion from mainstream education due to behavioural problems.
It is currently based in Millennium House and caters for 40 pupils but the numbers will eventually increase to 112.
The development for Walsall Studio School, for 14 to 19 year olds, will provide extra facilities such as science labs and sixth form study space, as well as a connecting bridge from the new block to the existing facility in the Goldmine Centre.
According to the project management plan, work is anticipated to start in November this year and be completed in February 2022.