The conversion of a former church into the venue would breathe new life back into the building, planners say.
It could mean new jobs for the town and bring new releases to Oswestry.
There is no date yet for work on the cinema to start. A consultant involved in the scheme says the next step is to apply for grants to make the project a reality.
Trevor Harris, who ran Oswestry's Regal Cinema for decades, said he was pleased that Shropshire Council had granted planning permission for a cinema in the building in The Citadel, King Street.
Anthony Harris of AJH Cinema Ltd, Mr Harris's son, applied to operate the new business from the building, which has been empty for five years.
It was a former church and a Salvation Army headquarters which has also been a carpet store.
Mr Trevor Harris said: "It is good news but it is just the first step. We now have to look at grants that may be available for creating this cinema."
The proposal is to show new films on release, with two evening screenings at 6pm and 8pm, Monday to Sunday. An additional screening will be held at 2pm on Saturdays.
The premises will also have a small stage which will allow other live and recorded performances and events to take place.
A planning statement for AJH Cinema said: "The provision of a new cinema in Oswestry has been a matter of public interest for some considerable time, and it is anticipated there will be strong public support for the proposal.
"Although provision was proposed within the Oswestry Smithfield mixed-use supermarket development, this development has not materialised."
Oswestry Town Council had not objected to the proposals but had raised concerns about a cinema in what is a residential area and also about the limited parking in the King Street area.
Mr Harris said most people could walk because the building was in the town centre.
Planning officers said that a cinema was a suitable use for the building and the project would help the vitality and viability of the town centre.
"It will bring a heritage asset back into life," officers said.
Permission was granted using delegated powers.
The market town has a specialist cinema, Kinoculture, in Arthur Street but not a venue able to show new releases.
There had been hopes that a cinema would be included in a £45 million shopping and leisure complex on former livestock market land on the Shrewsbury Road.
But these were dashed last year when Cineworld announced it was pulling out of the deal. Morrisons, which wants to put a new store on the land, is currently remarketing part of the site.