A senior al-Sadr aide said on Saturday the handover of medium and heavy weapons will start on Monday at three police stations in the Baghdad suburb and last five days.
As a confidence-building measure, the government is suspending raids and harassment of al-Sadr's followers in the sprawling area, which is home to more than two million people, Ali Smaisim said.
The announcement follows weeks of talks between interim Prime Minister Iyad Allawi's government, tribal leaders and members of al-Sadr's movement.
The interim government wants to restore enough security in Sadr City and other armed fighters' strongholds for national elections to take place in January.
Similar initiatives are underway with representatives of Falluja, a Sunni Muslim bastion which has resisted US-led control west of the capital.
Sadr City is home to around two
Al-Sadr's movement is still pressing for guarantees that the interim government will stop pursuing its members, release the cleric's detained followers and compensate residents for losses suffered during the fighting.
But al-Smaisim said the movement is willing to wait for an agreement on those points. Al-Sadr has not pledged to disband his fighters, a key US and Iraqi government demand.
But American and Iraqi authorities are also anxious to restore peace in as many areas of the country as possible without major bloodshed ahead of elections planned for January 2005.