A £3.5million 'new-build' St Kilda care home has been given the go-ahead for the Brixham Hospital site.
The 36-bed facility will be part owned by the Brixham Hospital League of Friends.
It is believed to be the first time a league, which gives huge support to hospitals, will part-own a facility.
Peter Day, league chairman, said: "I don't know of any other league of friends who has been asked or indeed has offered to become a part shareholder in a building.
"We will own 25 per cent of that building and as a stakeholder it gives us the security for the money we are putting in."
The league is providing £1million towards the building and will retain fractional ownership.
Sandwell Community Caring Trust, which currently operates St Kilda, is borrowing funds to the meet the costs.
Torbay and Southern Devon Health and Care NHS Trust is contributing the NHS-owned land to the scheme and Torbay Council is contributing £500,000 from the sale of the existing St Kilda site.
The decision has been welcomed by Cllr Mike Morey, Brixham town councillor and Torbay Council member.
He said: "This has been a long time coming. This has been on the cards for a number of years.
"The most important thing is that we provide the best possible care for our residents and this will go a long way to achieving that."
The facility will provide 12 nursing beds, 12 residential and intermediate care beds and 12 residential and dementia beds.
Discussions are also under way about providing a new GP practice for St Lukes on site. Health and social care teams will also have a permanent office base within the facility.
Steve Honeywill, head of community redesign at Torbay and Southern Devon Health and Care NHS Trust, said: "The St Kilda facility which is currently provided a short distance from the hospital delivers an excellent service to residents, but the newly built facility will complement existing services on the site and provide a modern, comfortable and purpose built environment for people to live and be cared for in."
The plans for St Kilda follow the refurbishments that were completed at Brixham Hospital in 2011.
The trust is due to consult about the plans and will go through the usual planning process.