Leading spirits brand Edinburgh Gin want to build the tourist attraction after buying up arches on East Market Street.
Plans and computer generated images have been drawn up - to be approved be the city council.
Neil Mowat, UK marketing director of owners Ian Macleod Distillers, said: “This is the beginning of an exciting new chapter in the evolution of Edinburgh Gin.”
The new distillery is designed to attract visitors keen to learn more about the history of gin-making.
Visitors will also have the chance to make their own gin – as well as taste some of the distillery’s own flavours.
Architects have designed the new premises with a view to welcoming more than 100,000 visitors through its doors each year.
Plans for the three-storey premises include a glass-fronted entrance providing a street-side view of the state-of-the-art stills.
Also incorporated is a rooftop terrace featuring Edinburgh Gin botanicals and private gin tasting rooms.
Since launching in 2010, Edinburgh Gin has taken off to become one of the leading industry brands.
The new distillery will enable the Broxburn-based firm increase production capacity by over 200 per cent in the face of booming demand.
A working distillery and visitor centre in Rutland Place and the heart of the West End welcomes visitors from all over the world.
Tours of the Edinburgh Gin Distillery have been ranked as one of Edinburgh’s top visitor attractions.
The brand’s core portfolio includes Edinburgh Gin, Seaside Edinburgh Gin and Cannonball Edinburgh Gin.
In 2016, the firm opened its second site at the former biscuit factory in Leith – increasing production with a custom-built commercial distillery.
Plans for the new Old Town distillery will be submitted to the city council for approval with construction expected to take 18 months.
Mr Mowat said: “As the ‘No.1 super premium gin brand in the UK’, Edinburgh Gin is in high demand and this investment is our commitment to continued innovation and growth. We are confident this will be a stunning distillery that offers a gin experience quite unlike any other.”
The Evening News understands initial plans for a distillery on the site were deemed too big by Edinburgh World Heritage, the body that helps protect the city’s Unesco status.