Avantis Hotels, which already owns and operates the Hampton by Hilton York in nearby Toft Green, is developing the Hampton by Hilton York Piccadilly.
The site most recently housed offices, a car park and a motorcycle accessory shop.
Piccadilly is situated in the Castle Gateway district of the city, and, together with neighbouring streets, has been identified by the council as an area for major redevelopment.
Due for completion in the first quarter of 2021, the 143-bed hotel will generate more than 50 full and part-time jobs.
In addition to the hotel bedrooms it will include eight private residences, all with views of Clifford’s Tower, going on sale in late 2020.
The scheme, which is designed to the latest BREEAM standards, will include cycle parking bays and electric-vehicle charging points.
The hotel’s terrace overlooks Cliffords’s Tower.
Ravi Majithia, Avantis Hotels’ development director, said: “The Hampton by Hilton York Piccadilly is an incredibly exciting prospect and is a significant investment for us.
“We are confident it will help breathe new life into a part of York that lacks activity yet has envious views overlooking the River Foss, facing one of York’s most popular attractions.
He added: “Our design team, many of whom are local professionals, have worked closely with the city planners to ensure the hotel’s design is not only sympathetic to its surroundings, but one that brings real benefits to the environment.
“Incorporating Historic England’s request to preserve key views from Clifford’s Tower to St Deny’s Church was challenging but shows our team’s commitment to maintaining York’s historic fabric.”