Hobart City Council on Monday night provided in-principle support to the handover of 4.9 hectares of land at Queens Domain to the Aboriginal Land Council of Tasmania.
It is believed to be the first council-led land return in Tasmania and among a handful of similar transitions nationwide.
The domain, which is home to walking tracks and sporting facilities, contains native grasses and views across the River Derwent and to kunanyi/Mt Wellington.
The council vote, which passed nine to three, comes after it decided in 2022 to take down a city statue of colonial surgeon William Crowther who was accused of stealing Aboriginal remains in the 1800s.
"The council is definitely leading the way in the state and across the country in recent times," Tasmanian Aboriginal Centre campaign manager Nala Mansell said.
"It's great to see some real action rather than just words."
The vote is the first step in the process, with the council to conduct further investigations around legal, planning, environmental and heritage aspects.
A handover would need to be green-lit by another council vote preceded by community consultation, a process likely to take several years.
It is proposed an island-first Aboriginal centre be set up on the domain land, which would remain open to the public.
The council's vote would hopefully embarrass the state government into delivering promised land returns, Ms Mansell said.
There have been no large-scale land returns in Tasmania since 2005, when Cape Barren Island, known as Truwana, and Clarke Island, known as Lungtalanana, were handed back.
"This historic decision enables the opportunity to create something truly meaningful," Aboriginal Land Council of Tasmania general manager Sarah Wilcox said.
"We see an opportunity to create a nationally significant cultural destination that celebrates Palawa culture and history.
"It is important to understand that we would not be disturbing the natural values of the site. For Aboriginal people, the caring for and healing of Country is our first priority."
Hobart lord mayor Anna Reynolds said the vote was a nationally significant milestone and an indication of council's willingness to explore opportunities.
The council decision was welcomed by state Aboriginal Affairs Minister Bridget Archer.
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