Talks about the future of the historic 19th-century building and Myers St property are ongoing in private council briefings, with the issue set to come to an open meeting in early March.
Early plans canvassed include a reception centre, residential development and space for offices and a gallery, with development estimates at more than $10 million.
The investigation comes after the heritage-listed Old Castlemaine Gaol was sold by Mount Alexander Shire late last year to developers for $550,000.
Cr Tony Ansett said Geelong's former maximum-security prison was under-used and a lot of it remained untouched, including substantial carpark space.
"The gaol is one of the most under-utilised sites in town that we've got," he told the Geelong Advertiser.
"I am keen to see it better utilised, but am also aware that it's getting some use in the community already.
"I would like to ensure they can still access the site."
Rotary operates the gaol and has restricted opening hours on weekends and some public holidays for tours of the facility.
Cr Ansett, the council's heritage spokesman, said any development would have to retain the site's heritage aspects, which are listed as having state significance.
While the council will seek public comment on possible future options for the prison, Cr Ansett floated the idea of converting the former cells into accommodation.
The four-storey gaol, which opened in 1864 and shut down in 1991, stands mostly unchanged from its time when it detained criminals in extreme conditions.
Men were hanged there for their crimes, including in 1863 police murderer James Murphy, who features in a current gallows exhibition.
The Pentonville-style facility has attracted the attention of paranormal researchers due to graphic accounts of bodies swinging from the hangman's noose and other so-called ghostly encounters.
The council assumed ownership of the site after it was decommissioned as a prison.
The Geelong Advertiser reported in 2007 that the council had identified the need for substantial investment to repair rotten timber and joinery in the gaol.
Since its closure as a prison in 1991, Old Geelong Gaol has been open to the public for tours. History fans and ghost hunters alike pay visits to the jail to see its tiny cells, and to see the place where, in 1863, James Murphy was hanged for beating a constable to death with a hammer.
Old Geelong Gaol is certainly dark as tourist attractions go, but darker still is the fact that many have reported seeing apparitions walking up and down the hallways of the prison, and hearing the sounds of young girls crying. Quite a few ghost-hunting teams have investigated paranormal phenomenon within the walls.