The former home of the museum, at one time amongst the city's most popular tourist attractions, has gone on the market after current occupants White Dove decided to sell up.
And now it is hoped the site, next to Advocates Close, can be restored to its former glory, with a new waxwork museum in the building's large basement.
The idea is being investigated by Thom McCarthy, a member of the Old Town Business Association, and Howie Nicholsby, of Geoffrey Tailor Kiltmakers.
While the endeavour is in the very early stages, both men admitted they were excited about the prospect of bringing back the attraction. They are currently looking at the possible cost of the venture, and hope to attract both private investors and the city council to back the scheme. Mr McCarthy, who has traded on and around the Royal Mile since 1972 and most recently ran the Golden gift shop, said: "We are looking at the feasibility of re-opening the waxwork museum, as the former premises are up for sale. It is a prime location, and we know there are several interested parties, but we are looking to see how much backing we can get.
"We would like the council to come on board as it is an important location and deserves something a little better than just another gift shop.
"I think it could be a great tourist attraction, and it also has a very strong educational aspect to it."
The original Edinburgh Waxwork Museum opened its doors in 1976, and at the time was the only attraction of its kind in Scotland.
It boasted realistic models of historical figures such as William Wallace, Mary Queen of Scots and Robert Burns, fictional characters such as Red Riding Hood and Hansel and Gretel, and a gruesome chamber of horrors.
Within a few years it was attracting more than 230,000 visitors a year, putting it up with Edinburgh Castle as one of Scotland's top tourist attractions. Over the years it acquired figures including Prince Charles and Princess Diana, ET and even Mr Spock.
It was still extremely popular when it closed in March, 1989, after the owners decided to cash in on their investment by selling the area for offices. The waxwork models were bought by a property firm who donated some to the Scotch Whisky Heritage Centre.
If the plans do go ahead it is expected that Mr Nicholsby will provide all the clothing for the models. He said: "The Edinburgh Waxwork Museum was a great memory of my childhood, and it was something that was really thrilling for people back then. So we are looking at the possibility of bringing it back."