The ground is home to Rugby League’s Leeds Rhinos and Rugby Union’s Leeds Tykes, and work will begin on October 11 and is expected to be completed by the end of July 2006.
Ground capacity will be reduced by nearly 5,000 to 16,600 while work on the new Carnegie Stand is carried out.
It has been financed, without any grant funding, in partnership with Leeds Metropolitan University.
Leeds Rugby chief executive, Gary Hetherington, said: "This is an historic announcement for the stadium and shows our commitment to restoring Headingley to its correct place at the pinnacle of rugby stadia.
"We are now in a position whereby Leeds Rhinos are world champions and Leeds Tykes have an opportunity to be Heineken Cup champions this season, and we are investing the profit into Headingley Stadium."
