Following discussions between the County Council and the City of Lincoln Council, the Usher Art Gallery will remain open and Lincoln's museum and art collections will remain in Lincolnshire.
"We're pleased we could reach a sensible agreement," said Cllr Martin Hill, leader of Lincolnshire County Council.
"As a result of the new arrangement, as well as continuing to run the Usher Gallery as an art gallery, we're now able to use the space more flexibly, and will also host ceremonies, educational workshops and allow private hire. It will be a much improved solution – bringing more visitors to the site, for more reasons and more often.
"We both acknowledged the challenges, but we're comfortable we've found a way forward, enabling us to collectively honour the wishes of James Usher, and also the residents of the county.
"Together, we are creating a modern agreement to ensure our heritage can be fit for the future ."
Subject to final legal agreement, this results in Lincolnshire County Council continuing to lease the Usher Gallery from City of Lincoln Council with its contents, both in the gallery and in storage, in the care of the county council.
The two authorities will also work together to explore external funding bids to invest in transforming both The Collection building and Usher Gallery and, in doing so, create a sense of one location across the two sites.
Cllr Ric Metcalfe, Leader at City of Lincoln Council, said: “Our conversations in recent weeks have proved to be very positive. I am confident that we have reached an agreement on the best way forward, which remains true to the bequest of James Usher.
"We have achieved a very positive outcome that is beneficial to both sides as well as being a positive for the city’s heritage."
Lord Cormack, Chairman of the Historic Lincoln Trust and a Trustee of the Usher Gallery Trust, has welcomed the agreement between the County and City Councils on the future of the Usher Gallery.
He said: “I am delighted that such a constructive and sensible agreement has been reached between the two local authorities. We must all do what we can to ensure the future success of the Usher Gallery and the guarantee that it is going to be open and supported as a Gallery by both Councils is a most welcome announcement after a difficult year."