George Lucas will open a Museum of Narrative Art in Los Angeles, not San Francisco, as speculated by many.
The Star Wars creator will fund the project with around US$1 billion (NZ$1.4bn), including building costs, his art and an endowment of at least US$400 million (NZ$570m), according to reports.
Lucas' personal collection of art, including several Star Wars items, will fill the museum which will be built in LA's Exposition Park.
"It feels like this incredible gift has come home. I always thought Los Angeles was the natural place to spread the vision of George Lucas and Mellody Hobson, to make art and creativity accessible and inspirational to the next generation," the city's mayor Eric Garcetti told the LA Times.
"It's a natural place to have this museum in the creative capital of the world and in the geographic centre of the city. It's a banner day for LA."
The park was pitted against Treasure Island in San Francisco Bay in competition for the museum, which will bring not only a lucrative tourism boost, but also thousands of jobs.
Garcetti called it "The largest civic gift in American history".
The mayor is thrilled Lucas will add to LA's booming art scene, which is said to have more galleries and cultural spaces than any other city in the US.
Lucas, 72, has been struggling to get the project off the ground for almost a decade, with legal issues and other complications delaying it.
The museum building is being designed by himself along with Chinese architect Ma Yansong, with a sleek, futuristic design proposed.
Art historian Don Bacigalupi will serve as founding president of the museum.