Rabbi Nachman Holtzberg, whose son Gavriel and daughter-in-law Rivka were killed in the assault, said a small memorial and educational center would be created at the five-storey Nariman House complex in the south of the city.
"The fifth floor of the building will be set up exactly the way it was when my son, daughter-in-law and little baby Moshe used to live there," he was quoted as saying by the Mumbai Mirror newspaper.
"Moshe doesn't fully understand what happened but he's happy that there will be a museum in memory of his parents. His room, too, will be re-made as it was before," he told the tabloid by phone from Israel.
"It will have his cot, his toys and a painting made by his parents that now has bullet holes in it."
The daily said some of the couple's belongings that were not destroyed in the attack would also be displayed. An educational center and synagogue would be housed on other floors, Holtzberg added.
Six people, including the Holtzbergs, were killed when two heavily armed gunmen stormed Nariman House on the evening of November 26, 2008.
Run by the US-based orthodox Chabad-Lubavitch movement, the center, which is still scarred by bullets and fire, operated as an open house for visiting Jews and the local community.
The attack was part of a series of co-ordinated assaults on high-profile targets in Mumbai which left 166 people dead and more than 300 injured.
The only one of the 10 gunman to survive was last week convicted and sentenced to death.
The Holtzberg's son, Moshe, now aged three, escaped the carnage after being plucked to safety by his Indian nanny.
Rabbi Avraham Berkowitz, director of a relief fund set up after the attacks, told AFP last year that the Holtzbergs would have wanted to rebuild Nariman House, making it "stronger and better than before".
"That's what we are committed to do... It's for the whole of Mumbai, for the world to show that terror will not prevail and goodness will prevail in the world," he added.