The Grand Avenue Authority of state and local officials voted Monday to lease 2.5 acres of county-owned land to Broad.
Under the deal, Broad will finance construction of the $80-million to $100-million museum and contribute $200 million toward its operation. He would pay $7.7 million over the course of the 99-year-lease.
The museum will be built on the southwest corner of Second Street and Grand Avenue, next to Walt Disney Concert Hall, on a parcel previously slated for condominium towers.
Mayor Antonio Villaraigosa says that the museum will serve as both an economic and cultural engine for L.A.
"Nearly a year ago, when other cities were courting Eli Broad to build his museum in their towns, I met with him to encourage him that his museum and world-renowned art collection belong in Los Angeles," said Villaraigosa.
"Today's decision is the final step we needed to make the vision of The Broad Museum in Downtown Los Angeles a reality," he added. "As a prominent anchor to a growing cultural district, the museum will serve as both an economic and cultural engine, creating construction jobs as soon as this fall and will further fan the creative and artistic renaissance currently underway."
His 2,000-piece collection includes works by Jean-Michel Basquiat, Salvador Dali, Any Warhol and Joan Miro.
The museum is projected to attract 200,000 visitors to downtown every year.
The Associated Press contributed to this story.