Peter Jackson, Oscar-winning director of the Lord of the Rings movies, has signed a deal to produce two films based on JRR Tolkien's The Hobbit.
Jackson is currently shooting a film of novel The Lovely Bones
The filmmaker had been in dispute with New Line Cinema over income generated by the first film in the Rings trilogy.
"I'm very pleased that we've been able to put our differences behind us," said Jackson. "We are delighted to continue our journey through Middle Earth."
A director for the films - prequels to the Rings movies - has yet to be named.
The two Hobbit films will be filmed simultaneously, with their release planned for 2010 and 2011.
Sir Ian McKellen has already expressed an interest in reprising his role as the wizard Gandalf.
In a statement, Jackson said the agreement enabled his Wingnut Films company to "begin a new chapter with our old friends at New Line".
The three films in the Rings trilogy generated $3bn (£1.48bn) at the worldwide box office and won 17 Oscars.
New Line co-chairman Bob Shaye had previously said Jackson would never make The Hobbit "during my watch".