Leith Walk Primary School is planning its first major celebration of the artist, who attended the school in the 1920s, with a massive painting on the back wall of a neighbouring two-storey building.
The mural looks similar to one of Paolozzi's famous colourful collages, on a massive scale, with geometric shapes and images drawn from fashion magazines, such as a high-heeled shoe, a make-up compact and a model with an oversized head.
Leith marketing firm Newhaven Communications has donated the wall, which overlooks the school playground, to honour the artist.
Head teacher Stewart Crabb said: "The playground is a bit of a concrete jungle at the moment, so we were looking for some sort of community project to revive it and make it a bit more lively.
"Paolozzi is an ex-pupil of the school, so we thought it would be a good idea to celebrate his work.
"Newhaven came up with the idea of creating a big mural on the wall, so we are hoping to do some fundraising in the near future to pay for it.
"It's such a massive painting, the size of a whole building. If we get the go-ahead, we will move to the fundraising stage. Newhaven has donated its time so we'll only have to pay for the paints."
Paolozzi was born in 1924 to Italian immigrant parents in Leith.
After beginning his education at Leith Walk School and Holy Cross Academy, he went on to attend evening classes at the Edinburgh College of Art.
During his time at ECA, as well as learning drawing and stone-cutting, he began to fill scrapbooks with images cut from magazines – a habit that was eventually to make him one of the fathers of Pop Art.
He was made a CBE in 1968, elected to the Royal Academy in 1979 and knighted in 1989.
His best-known work in the city is The Manuscript of Monte Cassino – the three-piece sculpture sited outside St Mary's Roman Catholic Cathedral on York Place that includes a giant hand and foot. The Dean Gallery also hosts an exact replica of his art studio.
Mr Crabb added: "We've not really had the chance to do anything like this before.
"We would love to display some of his art at the school, but I would imagine it's worth a fortune now, so it will be a bit beyond our means.
"This will be the first major project we've undertaken to mark his time at the school."