The proposals will provide a new parish office and community space, enhanced play facilities and a number of new homes.
The council says the scheme will protect the existing Gower building in St Georges and allow St Georges C of E Primary School to enhance the educational facilities available to pupils, with more flexibility around their accommodation.
Built in 1873, the grade II listed Gower School House, on Gower Street, originally served as a cottage hospital before being converted into a school.
It closed in 1960.
The borough council will work with St Georges & Priorslee Parish Council and says the project will see the building protected for many years to come.
The site was recently subject to a speculative application to designate it as an asset of community value.
The application has been determined, highlighting the importance of the building to the community.
Councillor Lee Carter, Telford & Wrekin Council's cabinet member for neighbourhood, commercial services and regeneration, said: “Telford & Wrekin Council fully recognises that The Gower is an extremely iconic asset in the local community and it is our priority to ensure that a scheme is delivered which not only protects the future of the historic building but also finds an appropriate use for it.
"There have been a number of failed attempts by community groups to bring forward a financially viable scheme for the site and unfortunately this has only led to the site being sterilised.
"The building would have fallen into greater disrepair had we not invested to fix the roof and secure the site.
"Recently the parish council fully explored options to turn the entire building into a community facility but again the independent advice received showed it was not financially viable given the cost of conversion.
“It is realistic to think that with the financial investment from the council the listed building can be used both as a community asset and deliver good quality housing, ensuring there is a long term future for the building.”
The council will be looking to submit a planning application as soon as possible with the aim to be on site by the autumn of 2021 at the very latest, with new facilities open towards the end of 2022.