Hundreds of Europeans with depression will soon have the chance to turn on, tune in and drop out of existing drug treatments, in the largest clinical trial ever launched to assess the medicinal effects of a psychoactive substance.

A British start-up is preparing a groundbreaking experiment to start early next year in eight European countries for 400 patients with treatment-resistant depression. The aim is to test whether psilocybin, the active ingredient in magic mushrooms, can help improve their condition over three months.

The trial — still subject to final approval from regulators — marks the boldest attempt yet to relaunch scientific study of the psychedelic substance in more than half a century. There was a clampdown on psychoactive drugs from the 1960s after they were popularised for recreational use by counter-cultural figures such as Alexander Shulgin and Timothy Leary, the psychologist who called for people to “turn on, tune in, drop out”.

There has been recent renewed interest by academic groups and companies into psychedelics including MDMA, LSD, ketamine and psilocybin for conditions including depression, post-traumatic stress disorder, obsessive compulsive disorder, severe headaches and alcohol dependency for which existing therapies are often ineffective.

Compass Pathways, a UK company created by a group of health specialists, has been in discussions with the European Medicines Agency and other regulators to prepare a trial that would administer psilocybin and use digital technology to monitor participants’ reactions.

George Goldsmith, one of the founders with a relative who had serious depression, said: “This is not about going back to the 1960s, but about taking forward 21st century science with digital innovation and medicines now that we understand how they work.”

A positive result in the trial could trigger regulatory approval and challenge both psychotherapy and the use of anti-depressants produced by the drugs industry. An estimated one-third of people with diagnosed depression do not respond well to current treatments.

The widespread recreational use of magic mushrooms has given regulators reassurance that psilocybin is safe, while studies including a small one last year by London academics showed significant benefit in patients with depression.

Compass has already received £4m in seed funding from its founders and external backers including Christian Angermayer, and is in discussions with private equity funds, venture capital and strategic investors to raise £15m for the European trial.

Mike Novogratz, the US investor and former principal at Fortress who is providing £1m, said: “My sense is I’m betting on the right horse at the right moment. If it works, this will push society forward, and I’ll get a good return.”

Alfred Hofmann, the Swiss scientist who first synthesised LSD in 1938, produced psilocybin for Sandoz, now part of Novartis, from the late 1950s until the mid-1960s, when governments began to make psychedelic substances illegal.

Compass has overseen production of the first significant quantity of psilocybin made to regulatory standards since that time. It is also using digital technologies to monitor patients for any signs of relapse during their participation in the trials, such as indicators that they are becoming inactive and isolated.