The council has submitted an offer to purchase St James' Hospital in Milton, with a view to redevelop the site with a mix of residential and social care uses.
This marks the first stage of the process, with successful bidders going through to interview to discuss plans in more detail in the next round.
Cllr Gerald Vernon-Jackson Leader of Portsmouth City Council said: "Our formal bid marks a serious intention to use St James for much needed affordable housing and social care services such as a dementia support, while also being a commercial investment for the council. The closing date for bids was last Friday so we hope to have feedback soon.
We understand the site is a much loved area for local residents and we want to make sure it's protected and utilised to its full potential. Private investors might be looking for huge profits however as a local authority we're able to be more imaginative with our plans, which would also provide much needed social care support for our most vulnerable residents."
The 25-acre NHS site has a mix of listed buildings and parkland, Solent NHS Trust will keep a small area of the St James’ Hospital land for its mental health services.