The French defence minister, Herve Morin, says the French military base in Tahiti will be sold to French Polynesia for one euro.
Mr Morin made the announcement after talks with the French Polynesian president, Gaston Tong Sang, and Philip Schyle, who is the mayor of Arue where the base is located.
Mr Morin says the 27 hectare site is to be converted to what he calls a breeding ground for businesses.
He says the base won't be closed until a plan for its future use has been drawn up, which he says should happen within a couple of years.
Mr Schyle has welcomed the announcement and suggested that the area be used for activities such as research and training.
When announced in May, the planned closure of the base had caused concern that Arue's economy would suffer.
A French defence review has signalled that between 2011 and 2015, the French military presence will be scaled back.
First defence cuts began after 1996 when France completed its nuclear weapons testing regime in the South Pacific.