A church attached to the former home was knocked down in preparation for the construction of 64 new social housing homes at Bishop Street.
The development, which ends a 120-year link between the Sisters of Nazareth and Derry.
The prominent site was previously operated as an orphanage and primary school by the Sisters.
However, it was later developed as a care home for the elderly with the primary school managed independently.
It finally closed closed in 2013.
Nazareth House church, Based in the Long Tower parish, was also home to a weekly Irish language Mass for years.
The demolition of the site will pave the way for the building of 40 new properties. However, the original Nazareth House, which is a listed building, is to be retained but refurbished to include 24 apartments.
Following its closure as a care home, the site was purchased by Belfast-based Choice Housing for a reported price of £750,000.
A spokesman for Choice Housing said it was hoped the new project would be completed by April 2021.
“The adjacent outbuildings will be demolished and the new development will consist of 40 new build dwellings, a mixture of wheelchair bungalows, active elderly apartments and general needs houses,” he said.
“It will also incorporate landscaping, car-parking, site works and accesses to Foyle Park and bishop Street.”
The spokesman also confirmed that an old bottle, of unknown age, which was uncovered by demolition workers has been handed over to the Nazareth House primary school.