Plans include a new town square, high school, library, a supermarket, offices and 600 homes.
The scheme by PARC, a joint venture company comprising the EDI Group and the local authority, is part of the wider £200m regeneration of Craigmillar.
The school and supermarket are likely to form part of the first phase.
PARC general manager, John Quinn said: "The approval of the town centre masterplan marks a significant milestone. This impressive blueprint will create a new heart for the regeneration area by both revitalising the town centre and giving the wider area an identity and sense of place."
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PARC will work with the local community to produce detailed plans for each part of the scheme.
The application approval comes after a year long consultation by architect Broadway Malyan.
Mike Harrison at Broadway Malyan said: "This is an extraordinary opportunity for the regeneration of Craigmillar with the potential to create a vibrant and community focused town centre.
"We have spent a lot of time in Craigmillar sharing these proposals with the community and to give the people of Craigmillar the chance to express their views and inform the process."
(GK/JM)
