Hillsborough is set to undergo a four-stage plan - scheduled for completion in 2013 - which includes new community facilities, increased capacity to over 44,000 and the removal of pillars and new roofs in both the kop and west stands.
The £22million proposals, unanimously approved by Sheffield Council, will enable the club to achieve FIFA's 2018 World Cup criteria should England triumph in their bid to host the tournament.
Club chairman Lee Strafford said: "Sheffield City Council has recognised the strong community aspects of our design and we're looking forward to making Sheffield Wednesday an iconic home for our team, our supporters and our community fit for the 21st century.
"All fans would agree that Hillsborough is in need of investment and our next task is to secure funding for the various aspects of our proposals.
"We have already started the grant application process for the West Stand Learning Zone and we are really pleased that we now have the green light to advance our plans with this planning decision."
The cost of the proposed developments will not affect the club's current published business plan, with the majority of the estimated £22million needed coming from government grants backed up by increased club revenue streams.