The agreement covers the planning stage for the modernisation of three 19th-century buildings that house Swiss guard members and the administrative headquarters.
The renovation costs are estimated at CHF45 million ($46 million). The construction work is likely to begin in 2026.
The barracks, which date back to 1825, do not meet the current requirements of the troops, nor does it comply with today’s building regulations.
So far, CHF37.5 million have been pledged by public and private donors, including CHF5 million from the Swiss government.
The foundationExternal link said on Wednesday that it was confident that it could raise the rest of the money in the coming months.
However, there is also opposition in some of the 26 Swiss cantons about financial pledges.
The Vatican is due to pay around CHF5 million for the temporary accommodation of the guards.
Around 110 Swiss guards are stationed at the Vatican in Rome, but the number is set to increase to 135. The soldiers have acted as a security force and a guard unit to protect the Pope within the territory of the Vatican City since 1506.
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If you want to start a conversation about a topic raised in this article or want to report factual errors, email us at english@swissinfo.ch.