Work has started to transform the former Metal Castings site at the junction of Penn Road and Graiseley Hill, for the project which will create around 70 new jobs.
The site, close to the Ring Road St Marks, has been empty for more than a decade.
It is expected to open for business in the first quarter of 2016.
The scheme was granted planning permission by Wolverhampton council in May.
Councillor John Reynolds, the council's cabinet member for city economy, said: "It is great news for the city centre that the diggers have moved in to start the development of this flagship site.
"This is a major development in this area – regenerating a redundant site which lies in a prominent position on one of our gateways to the city.
The new dealership will cover four acres and will include a showroom and a service centre.
Planning permission had previously been sought to build a hotel and leisure complex at the site but the scheme never got off the ground.
It is a second major commitment from JLR to the city after the opening of its £500m engine factory at the i54site which will see up to 1,400 jobs created.
Councillor Reynolds added: "Attracting this type of development shows what an aspirational city we are.
"Jaguar Land Rover is a global leader which chose to build a major production base on the i54 site we developed in collaboration with South Staffordshire Council and Staffordshire County Council.
"Cars that have been part-produced in the city could be sold from the Penn Road site in the future."