Kenilworth School and Sixth Form will receive a loan of around £1 million from Warwick District Council to help it move to a new joint site.
The council's executive agreed to start negotiations with the school at a meeting yesterday (Thursday May 31).
Its decision will hopefully allow the separate school and sixth form to move to a site on Southcrest Farm by September 2021.
Kenilworth School and Sixth Form's chair of governors Sue Casey said: “We look forward to working in partnership with Warwick District Council, other local authorities and Homes England to provide improved education facilities for the children of Kenilworth.
"We are delighted to be given an opportunity to create a purpose-built secondary school fit for the 21st century. In the meantime, we will continue to provide a high quality education for the students of Kenilworth at our existing sites.”
The move to Southcrest Farm will free up land for housing at the old sites in Leyes Lane and Rouncil Lane as part of the council's recently adopted Local Plan.
The school said it needed around £1 million by June 2018 to allow the move to happen by September 2021.
Its current funding means the school runs at a loss of £250,000 every year due to the costs of maintaining the two sites.
Warwickshire County Council had ruled out giving the school the money, so the district council decided to step in.
The district council will also look at potentially purchasing the land on the school's two sites, but this has yet to be decided.
Council leader Cllr Andrew Mobbs, said: “I am delighted to be working in partnership with the school to help deliver a school that the town deserves as well as much needed housing for our growing population.
"Whilst the plans are in the early days, we’ll be doing all that we can to see them delivered.”
A Warwickshire County Council spokesman said it was in favour of the school’s move and helped support a successful bid for funding from central government, which resulted in £9,591,000 going towards the project.