Schools across the UK could save up to £50m on Microsoft software over the next three years.
Microsoft boss Bill Gates has promoted laptops for pupils
The Education Secretary, Charles Clarke, said Microsoft had reached an agreement with the government's educational technology agency, Becta.
"This kind of agreement shows the advantages in co-ordinated procurement for schools across the country."
Labour MP Bob Blizzard, who has campaigned on the issue, called it "good news" for schools.
"It was wrong that schools, which now have so many more computers because of government funding, were having to pay so much out in licence fees to Microsoft," he said.
Becta is the government's main agency for information and communication technology (ICT) in education.
It said the reductions in cost would take effect from 1 January 2004.
The estimated savings were based on schools' current spending patterns and the cost of Microsoft products at the start of the current financial year.
They would amount to £46m over three years in England, with a further £2.5m-3.5m in Scotland, Wales and Northern Ireland.
Depending on the mix of products purchased, schools should be spending between 20% and 37% less than might otherwise have been expected, it said.
Becta's chief executive, Owen Lynch, said: "This agreement also represents a significant step forward in our relationship with our partners in the ICT industry.
"The organisation aims to develop a coherent, sustainable and dependable ICT infrastructure for education, and we will be working extremely proactively with the ICT industry over the next few years in order to achieve this."
Microsoft recognised the value of technology in the education system and had engaged "positively and purposefully" in what were complex and difficult negotiations, to get "an excellent deal for schools".
Microsoft director of education, David Burrows, said: "We recognise that resources in education are limited and, together with Becta, we are working towards the mutual goal of using ICT to improve attainment and the overall learning experience of children in UK schools."
The arrangement involves Microsoft cutting its "factory gate" prices to retailers - schools should still shop around for the best licensing deal, Becta said.
Schools which used other company's products were under no obligation to switch.