The largest construction project in Island history has entered full swing.

About 20 construction workers, engineers and heavy equipment operators toiled under the blazing sun yesterday - the first phase of the Martha's Vineyard Hospital's 90,000 square-foot, $46 million project, estimated to take two and a half years. At its peak, the project may have as many as 80 workers on the scene.

Subcontractors trucked in thousands of cubic yards of dirt to raise the grade of the future road. Workers built up retainer walls to hold in the new soil. The enormous jaws of a backhoe shoveled mouthfuls of the newly-demolished 1953 hospital wing into a tractor-trailer dumpster.

The demolition of the original 1929 structure will follow today, and the famous Tree of Lights the Women's Auxiliary illuminates every holiday season already has been replanted at Mink Meadows golf club. A heap of Christmas lights lay in a heap beside the road.

It's all part of a plan to upgrade the hospital's ailing facilities and meet the needs of the Island community.

The newest section of the hospital, finished in 1974, will be renovated to contain physician and administrative offices. The Windemere Nursing and Rehabilitation Facility will remain as well. But 25 state-of-the-art private rooms in acute care, intensive care and the maternity ward will be built into the new, environmentally designed facility. The new two-story structure also will house the emergency room, surgical services, medical imaging, laboratory and lobby.

Ground has been broken, but laying the foundation is still many months away, said project superintendent Paul Murphy of Columbia Construction Company, the North Reading-based company in charge of the project. The foundation work will likely begin some time this winter.

"This project is a complicated project due to a number of things," Mr. Murphy said yesterday. "There are a lot of people behind the scenes here - architects, subcontractors, engineers, hospital staff. We are all working as a team."

There are a number of Island companies working on the site, including Lawrence-Lynch Corp, Martha's Vineyard Electricians, Watercourse Construction and Mueller Plumbing.

While demolishing the 1953 structure on Wednesday, construction workers removed a cornerstone imprinted with the large numbers 1953. Unexpectedly, a lead container lay inside the concrete block - possibly a time capsule, hospital officials say.

For the time being, the cornerstone is sitting on a black plastic milk crate in the hospital's development office, waiting to be relieved of its unknown contents.

"It was in the right-hand corner of what we call the old hospital - where the day care center was," development director Rachel Vanderhoop said. "We think we'll probably have to cut the back of this to get it out."

The cornerstone still bears a hint of red crayon from its tenure by the playground.

One complication of the building project is the already-short supply of parking at the hospital, which will stay open through the duration of the project.

"Now that we're taking space, that's gotten worse," said Mr. Murphy, who has moved from his home in Boylston to Edgartown for the duration of the project. "We've had to phase our work with their parking needs," he added.

Once the 1953 and 1929 buildings are leveled, a temporary parking lot will be built from compacted gravel or recycled asphalt, so the construction crews can start work on the next part of the 13-acre campus.

The hospital's old wastewater treatment plant must also be decommissioned and demolished in the coming months. As the hospital hooked up to the town sewer in May, it no longer needs the outmoded facility. Instead, the permanent parking lot will be located in that area.

A special wastewater engineer must handle the decommissioning work, which requires permits from the Department of Environmental Protection. A hazardous-waste team will have to remove the sewage material.

Addressing neighbors' concerns is also a priority as work gets under way.

"We meet with the abutters about once a month - as well as the selectmen - to go over the issues," Mr. Murphy said. "There must be 300 abutters within that radius." The surrounding neighborhoods are divided up into four sectors and each sector has a representative who contacts Mr. Murphy with concerns. On a day-to-day basis, issues are handled by e-mail for the most part.

"I've got to say, it's working really well. Everyone's communicating. If there are complaints, we hear about it right away," he said. "It's important. We have to coexist with everyone for a long time," he added.

Neighbors have the contractors' work schedules, which also include significant events like shutting the water off. Yesterday, during the razing of the day care wing, the water was off for 28 minutes.

"It was pretty quick for a cut and cap," Mr. Murphy said, pleased.

To comply with earthquake-resistance standards, one phase of the project entails driving a vibrating probe into the ground, suspended by a crane, to compact the sand and soil and push out the water. International contractors are bidding for the work, since it is highly specialized, Mr. Murphy said.

"That has to be done under the whole footprint of the building and 20 feet around," he said. "That alone is going to take at least four months and we don't expect to start that until September at the earliest."

The site will be ready for construction sometime in the winter, which bodes well for the neighbors, who are mostly seasonal residents. Laying the foundation will take at least three months and will carry its share of challenges, Mr. Murphy said.

"There's a basement mechanical room that's basically right above the water table," he said, noting that the foundation must go below the water table. "So we will have de-watering to do," he added.

The structure then will be erected in fireproof steel, with concrete slabs for floors.

"We have to bring a complete hospital here over on a boat - that is how I look at it," Mr. Murphy said. "Hospitals are complicated. Everything is 10 steps above what you would find in a normal building. It takes a lot of coordination and effort."