Kristin Smart, 19, of Stockton, was last spotted heading back to her dorm after a party in the early morning of May 25, 1996.
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At the time, another student told authorities he left Smart near her dormitory after they and another female student walked back.
"We're not sure where this is going to take us," San Luis Obispo County Sheriff Ian Parkinson told a press conference near the excavation site. "Obviously, we want to be optimistic as possible and we hope that this leads us to either Kristin or evidence of Kristin."
The digging is happening at multiple locations, including the hilly terrain next to a campus parking lot, which was one of several identified in January by dogs specially trained in detecting the scent of very old human remains, the sheriff said Tuesday.
The location was disclosed because of its high visibility but the other sites were being kept secret because "we do not want to tip our hat to the possible suspect or suspects out there," Parkinson said.
Investigators admit they've been working on this new lead for years now after a big review of the case.
"We are hopeful that this will lead to the finding of Kristin or evidence that will bring closure to the family and ultimately to the community," Parkinson said.
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According to reports at the time, a neighbor in Smart's dorm called university police the next morning and reported that she hadn't returned. But other students said they thought she had gone camping, so officers didn't declare her missing for three days.
The student who told of leaving Smart near her dorm was questioned by authorities. His home was searched, but he was not arrested or charged in the case. Asked if that man is a suspect, Parkinson said, "I would say it's safe to say he's a person of interest in the case."
This dig has been timed to happen wile classes are not in session. The school year there hasn't started yet, and the excavation is expected to last about four days.
The excavation was expected to go 3 feet deep and extend outward 90 feet, involving 25 FBI agents and unspecified special equipment.
A California law, the Kristin Smart Campus Safety Act of 1998, now requires campus police to spell out exactly when they will call in outside authorities to investigate a violent crime.
The Associated Press contributed to this report.