Germany's DB Regio has been named as the preferred bidder to run trains and stations on the Tyne and Wear Metro.
The state-owned firm beat off an in-house bid to operate services for up to nine years from April 2010.
Owner Nexus was told to hive off parts of the publicly-funded network in return for a £300m investment.
Union leaders criticised the decision, claiming one of the area's "crown jewels" had been sold off despite delivering high levels of performance.
Nexus will continue to own all trains, set fares and co-ordinate improvements to the Metro's 60 stations.
Bernard Garner, director general of Nexus, said: "This announcement marks the final stage in a comprehensive 15-month process.
"We have maintained local ownership and control of the Tyne and Wear Metro, we have met the conditions to secure more than £300m capital funding to modernise the Metro and through investment we will create scores of new jobs, while protecting the existing jobs.
"DB Regio (Tyne and Wear) Ltd is offering better customer service to our 40 million passengers a year, good value to the taxpayer and the best package of terms for staff."
Kevin Rowan, regional secretary of the Northern TUC said: "Trade Unions and the TUC are extremely disappointed and saddened by the decision.
"The fact is this has been a jewel in the crown of public services, with excellent delivery and performance, high customer satisfaction and a well-run service, all within the public sector.
"Both workers and the travelling public should be concerned about this decision, the government appear to have learnt nothing from botched and costly privatisations in the past.
"This is absolutely the wrong decision at absolutely the wrong time."