Christ on the Cross, painted by the Greek artist El Greco around 1600, will go on show at a £5.5m Spanish art, culture and research institute to be opened in Bishop Auckland.
Granted planning permission last year, the gallery is set to open in 2018.
The painting was recently bought by Auckland Castle.
Stephen Deucher, director of the Art Fund which provided a grant of £377,000 towards the purchase, welcomed the announcement.
He said: "The acquisition of a major El Greco is always an important event, and the Art Fund is delighted this powerful - indeed monumental - painting will now be housed permanently in Britain and on display at Auckland Castle."
El Greco was born in Crete, but moved to Toledo, Spain in 1577, where he lived and worked until his death in 1614.
Alongside Spanish fine art owned by castle chiefs, pieces will be loaned from international galleries and private collections.
The adjoining former Barrington School is set to become a research and education centre focusing on 16th and 17th Century Spanish cultural works.
Works from the late medieval period to the early 20th Century will also be exhibited.
A £2.5m painting which formed part of the "Golden Age" of Spanish art is to be one of the key attractions at a County Durham gallery.