There is planning permission for 454 homes on the site, opposite a supermarket.
Keepmoat will build a mix of two-, three- and four-bedroom homes of differing styles. The development is being called Warren Wood.
West Lindsey District Council deputy leader Owen Bierley said: “This is a huge step forward in our plans to deliver homes in Gainsborough. I am pleased to confirm we have formally signed a grant funding agreement with Keepmoat Homes and a collaboration agreement with the Thonock and Somerby Estate.”
Homes England has allocated £2.19m from its housing infrastructure fund (HIF) to pay for road infrastructure and a junction improvement to support the scheme.
No start date for the work has been set yet but is expected soon, the council said.