The search of the scrubland that has now been sealed off comes after a specific request to Portugal from the Metropolitan Police, BBC News reported. Two other such requests have been made for other locations so far.
Portuguese officers will not be involved directly in the search effort, though a senior officer will oversee proceedings.
Though the resort is full of holiday flats and villas, the area identified is a vacant lot previously earmarked for development. Diggers to begin excavation will arrive in Praia da Luz later this week, the Mirror reported.
This latest stage raises the prospect for Madeleine's parents Kate, 46, and Gerry McCann, 45, of a "big breakthrough in the case", a family source told the newspaper.
"Obviously there is the chance her body could be found," the source said. "That is a nightmare scenario for her family, but it would also bring closure.
"They understandably have to remain positive and assume Madeleine is alive, but the dig raises the possibility of finding evidence that she is not."
Two weeks ago Scotland Yard's Assistant Commissioner Mark Rowley warned that developments like those seen today will not necessarily "lead to answers that will explain everything".
He said: "In the forthcoming weeks we are going to be going to a substantial phase of operational activity on the ground in Portugal.
"It's something that you would expect in any major inquiry.
"A thorough serious crime investigation works systematically through all the credible possibilities, and often in an investigation you will have more than one credible possibility.
"Therefore, just because we're doing a substantial phase of work in the forthcoming week doesn't mean that it's going to immediately lead to answers that will explain everything."
- UK Independent