Plans have been drafted for a multi-million pound investment on the old Boultham Park Dairy in Lincoln.
The proposals also include a residential development as well as parking spaces for about 140 vehicles.
Lincolnshire Co-operative Society, which owns the land, has applied for outline planning permission for the mosque and homes.
Meanwhile, full planning permission is sought so that Lidl can relocate there from St Mark's, creating between 15 and 20 jobs.
The supermarket proposal includes 71 car parking spaces. It is likely the mosque would have the same amount.
The site is accessed from Dixon Street and Boultham Park Road.
Lincoln Islamic Association had wanted to create a purpose-built mosque on the site of the old tin church in Church Drive, off Boultham Park Road, which burned down in 2008.
Planners rejected the scheme in October 2009 after residents raised concerns about traffic problems and parking.
Trustee of the Islamic association, Dr Tanweer Ahmed, said: "I am very excited and optimistic.
"I think we have listened to the concerns raised by local residents and addressed those concerns."
Irene Blank, 80, of Marjorie Avenue, off Boultham Park Road, said: "I think there is plenty of room for a mosque and a supermarket on the site and this time the question of parking won't be an issue.
"I think there is room for everyone."
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