The old Manor High School, on the Friar Park estate, closed in July 2012.
Since then it has sat in a sorry state, with smashed windows and an asbestos warning graffitied across the front of the building.
The proposal would come as part of The Sandwell Housing Zone scheme, which will allow for more than 700 homes to be built in the Friar Park area over the next 10 years.
At the moment it is not known how many homes would be built on the site.
Councillor Joy Edis, who represents the Friar Park ward, said the development would be welcome – with plans currently in their early stages.
She said: "We are hoping that plans are going through to build houses on there and it will be demolished and the new properties built on there.
"All of the side of that road down to the Walsall Road will hopefully have houses on there – it will be a huge new estate coming to the area.
"It has stood like it is since being closed three years ago so now this would definitely be welcome in the area. It will be good when the school comes down.
"At the moment its at the very early stages but the development is being talked about a lot.
"The three ward councillors are all hoping that it will be knocked down and the work for the houses will start on it."
The building closed after Manor High merged with the Menzies High School to create The Phoenix Collegiate in September 2010.
The new school operated from both sites for two years until the Manor High buildings were eventually closed down in July 2012.
Manor High School opened in 1968 on the Friar Park estate.
But claims that exam results attained by school leavers were constantly low, along with the demand for places falling by the 1990s, saw many parents of pupils living in the catchment area choose for them to attend other schools.
Alongside Wednesbury, The Sandwell Housing Zone includes Grove Lane, Smethwick, which could welcome up to 900 homes.
The Friar Park area is a 39-hectare site jointly owned by Sandwell Council and Severn Trent plc.
Grove Lane involves a group of sites, amounting to 30 hectares in multiple ownership, which between them could accommodate around 900 new homes.