Picturehouse will lease the old Nettlefold Hall in Norwood High Street and turn it into a four-screen cinema, with bar and café.
As part of the deal, West Norwood Library will also be improved with a £1.125m investment.
Cllr Jane Edbrooke, Cabinet Member for Neighbourhoods, said: “We know this agreement has been a long time coming but I’m delighted to announce that Picturehouse are coming to West Norwood.
“The area is seeing some really positive changes with the brand new West Norwood Health & Leisure Centre opening in the summer, West Norwood Feast happening every month and now a new cinema and refurbished library opening by 2017.
“West Norwood is fast becoming yet another vibrant Lambeth town centre that people will thoroughly enjoy visiting.”
Lyn Goleby, Managing Director of Picturehouse, said: “This is the sort of building that we get very excited about – modernising and reinventing a place that sits at the heart of its community.
“We hope that the support the project enjoys will mean that we can very soon deliver a great new facility for West Norwood”.
Following the signing of the Agreement to Lease arrangement, there will now be a period of around 12 weeks to complete costings and develop designs ready for a full public consultation, which will begin early next year.
Picturehouse already run the Ritzy Cinema in Brixton and the Clapham Picturehouse, as well as other venue across London. They will spend over £2m on the Nettlefold Hall site.