Direct Autos garage is to move from Newent High Street and low-cost housing built on the site by developers Sudeley Homes.
Garage owner Paul Beard leases the site from a private landowner, who has struck a deal with Sudeley.
Outline planning permission for the new homes, which will start at £80,000, has already been obtained from the Forest of Dean District Council.
Mr Beard said he had agreed a sum with the private landowner to relinquish his lease and planned to move his business out by the end of June or in July.
He will relocate to new premises on Cleeve Mill Lane, off the bypass and beyond the turn to Clayton and Cox vets.
He said: "We've been here six years and had a reasonable lease, but were offered a sum of money to move.
"It has all worked out OK for us, though a move was not something we would have considered."
Mr Beard said the new site was smaller than the High Street location, but layout would be better and would feature a more modern workshop.
Direct Autos ceased to sell petrol from the pumps shortly before the business was asked to move and petrol sales will not be a feature of trade at the new site.
Mr Beard said: "There will be no pumps, just MOTs and motor repairs."
Letters have been sent to existing customers, informing them of the imminent move.
Newent mayor, Fred Passant said no detailed plans for the proposed housing had yet come before the town council, but he understood that more than ten homes would be built there.
He said the site of the garage had been earmarked in the district council's local plan as an area for new housing.
Coun Passant added: "This is something I welcome, very much so. It will tidy up that area, hopefully, and I look forward to the prospect of some nice looking homes."
Sudeley Homes has been praised by the town council for its sensitive redevelopment of the former Co-op site in Newent.
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules hereComments are closed on this article