The Government has agreed to hand over control of Spike Island to Cork County Council.
The council has plans for a tourist attraction to be opened on the site of the former Fort Mitchel prison.
A statement from the Department of Justice confirmed that negotiations will now take place between it and the council to bring about the necessary transfer of ownership.
Making the announcement, Minister for Foreign Affairs Micheál Martin said: 'I believe that it is important to unlock any tourism potential of the island to the immediate benefit of the Cork and Munster region generally.
'I would like to thank all those involved in Cork County Council for their willingness to actively explore the tourism potential of the island.'
Fort Mitchel was handed over to the Department of Justice by the Department of Defence in 1985.
It had a maximum capacity for 102 prisoners until its closure in 2004.
It was first used as a place of confinement in the 17th century following the end of the Cromwellian wars when it was used to hold prisoners to be transported to the West Indies and Australia.