The University of Ulster is to buy the site of Foyle and Londonderry College.
An option agreement to secure the 30 acres of land at Northlands Road has been signed as part of major plans to develop the campus and increase the number of students in the city.
A new school is to be built for Foyle and Londonderry at Clooney in the Waterside area and should be ready in three years time.
Employment and Learning minister Sir Reg Empey is expected to make an announcement early next year on an application funding for the development which includes the creation of an Institute for Sustainable Technologies, an Institute of Health and Wellbeing as well as plans to increase the number of full-time and part-time students by 2,000.
University of Ulster Vice-Chancellor Professor Richard Barnett said the agreement signed with Foyle and Londonderry was an important milestone.
"Our aim is to help deliver the economic and cultural regeneration of the North West, injecting vitality, energy and creativity into region, assisting its transformation into a dynamic cultural, creative and educational destination," he said.
Professor Deirdre Heenan, Dean of Academic Development for the Magee campus, said the agreement meant the university would almost double its physical presence in the city and be a catalyst for economic, social and cultural regeneration in the North West.
A ministerial decision to support the expansion as well as raising the cap on student numbers is expected early in the New Year, according to Foyle Sinn Fein MLA Martina Anderson who has had talks with Sir Reg.
© UTV News