The mediation process will take place at a hall at the Faizabad Avadh University, the officials said, adding that no one had been allowed to enter the area.
Heavy security arrangements are in place, Faizabad District Magistrate Anuj Kumar Jha said.
The three-member panel, comprising retired judge Justice Kalifullah, senior advocate Sriram Panchu, and spiritual leader Sri Sri Ravi Shankar arrived in Faizabad on Tuesday, he said.
They would stay in Faizabad for three days as per a programme was given by the panel, the officials said.
A heavy restriction has been imposed on the road leading to the Guest House on the Awadh University campus where the proceedings are taking place.
Referring to the dispute, the apex court on March 8 said that "utmost confidentiality" should be maintained to ensure the success of the process and that it should be completed within eight weeks.