The former Portersfield site, which including land where Cavendish House stood, has been the subject of several failed proposals in recent years.
The council is now ready to consult residents about its "development brief" for the brownfield site which it hopes will attract a multi-million-pound private investment.
Housing will form a key part of the development which will help the authority towards filling its quota of new homes which must be built in the West Midlands.
Councillor Patrick Harley, leader of Dudley Council: "Following several high-level discussions with prospective investors, I am pleased to confirm that we will be consulting over exciting proposals for the Portersfield site this spring.
"The regeneration of this Dudley town centre site will create hundreds of homes, provide exciting new leisure opportunities, and could create up to 500 jobs, supporting the local economy."
He added: "Dudley Council is committed to driving investment and economic regeneration for our town centres, and we continue to focus our housing developments on the borough’s brownfield sites."
Developers Avenbury originally proposed a major retail development for the site, including a large supermarket, multi-storey car park and cinema.
However, council planning chiefs insisted housing needed to be part of any new development and it was finally dropped in June 2021.
Plans for a new £24 million bus and metro interchange in the town centre which would see the 36-year-old bus station demolished and replaced with a new hub linking bus and Metro services, was granted full planning permission last September.
However, construction work has yet to begin with supermarket Farm Foods refusing to relinquish its land without being given a replacement which is 38 times bigger.
Dudley Council has now resorted to using Compulsory Purchase Order (CPO) powers to force the sale of the Fisher Street supermarket.
The council revealed in December CPOs for 27 other pockets of land in Birmingham Street, Bourne Street, Fisher Street, St Joseph Street and Trindle Road to enable work to begin on the transport hub.