Voluntary organisations instigated a judicial review in 2004 to prevent the council cutting £1.6m from its voluntary sector budget. The cuts, which jeopardised 400 jobs, were announced without consultation.
Kevan Lyles, chief executive of Voluntary Action Leicester, said the agreement provided "a strong launch pad for an era of harmonious relations between public and voluntary sectors in our city".
Talks about creating a Compact began in 2005. The final document will be signed by council leader Ross Willmott, Voluntary Action Leicester chair David Brazier and a representative from the Connexions service. It is hoped other public sector organisations will sign in coming months.