Mayor Eric Garcetti has termed the project as a turning point for the city and the area around Exposition Park, reported Variety.
The museum, which will be the home to Lucas' extensive collection of art and film memorabilia, will be constructed in the park adjacent to USC.
It will be located adjacent to the Los Angeles Memorial Coliseum, the Natural History Museum, and a museum of African-American history and art.
"I believed in the vision for the Lucas Museum, and we went after it with everything we have - because I know that LA is the ideal place for making sure that it touches the widest possible audience.
The mayor said he got the news the museum would come to LA from Lucas's wife, Mellody Hobson. Construction is set to begin this year near the corner of Vermont and Exposition avenues and to be completed in 2020.
The collection includes about 10,000 paintings, illustrations and other items, with works from Norman Rockwell, NC Wyeth, Thomas Hart Benton and many others, along with mementos from many films, including "Star Wars."
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