The ghosts of 17th century plague victims are said to inhabit Mary King's Close.
According to legend, the entrances to the street were sealed up to prevent the spread of the disease - leaving those inside to perish.
The Continuum Group is set to outline its plans to turn the close, which forms part of the city's ghost tours, into a major tourist attraction in its own right.
However, its chief executive Dr Dominic Tweddle told BBC Scotland that the tales of people being sealed inside the lane were untrue.
"What we are trying to do is restore a bit of historical truth to a fascinating bit of Edinburgh," he said.
He said that people who lived in the close did catch the plague in the mid 17th century.
"But they were actually quite well looked after by Edinburgh City Council. They had deliveries of food and coal and ale.
"They were quarantined - the 17th century word is enclosed.
"They weren't sealed up but nobody wanted them about on the streets potentially spreading the disease," he said.
Passageway
Dr Tweddle said that the close was "lost" when the City Chambers was built.
The ground was levelled and the remains of the lane became part of the building's cellars.
The passageway originally led from the Royal Mile down to the Nor'loch - which was later drained to create Princes Street Gardens.
The Continuum Group won the contract to develop and run Mary King's Close from Edinburgh City Council earlier this year.
Previously unseen rooms are expected to opened to the public next spring.
Dr Tweddle said parts of the close dated as far back as the 16th century.
"It is a cross-section of Edinburgh life before it was sanitised," he said.
"We want to maintain the atmosphere down there.
Apparitions reported
"We want to maintain it more or less as it is, but with some good lighting, some atmospheric sound effects and to actually furnish some of the rooms as they would have been and to people them with characters."
Last year scientists monitored the close and Edinburgh Castle's dungeons in an attempt to establish whether there were any ghostly goings-on.
The investigation was led by Dr Richard Wiseman of the University of Hertfordshire, who said he was encouraged by the findings.
Volunteers reported apparitions and physical contact during the 10-day investigation.