The memorial will house Narayan's collection of works, writings and photographs, a senior Karnataka Urban Development Department official said.
It would also house a reading room and a library, which will help students doing research work in English, the official said.
The design of the vacant bungalow will not be modified from outside, but the inside will see a slight change to display Narayan's works, Mysore Urban Development Authority (MUDA) Commissioner C G Betsurmath said.
After Narayan's death in 2001, the bungalow named after his daughter Hema, has been lying vacant. After her death, it passed to the author's grandchildren Minni and Srinivas, who sold it to a builder, triggering an outcry.
When the builder began demolishing the house, the Mysore civic body took up the matter up with the state government in September 2011.
The previous Law and Urban Development Minister Suresh Kumar quickly got an order passed under the Karnataka Town and Country Planning Act to take over the house of the celebrated English novelist.
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