Dudley Council says the club has agreed 'in principle' to a loan deal over the collection, which includes the Dudley-born hero's England caps, as well as shirts, medals, trophies, photographs and match programmes.
The Edwards family are in negotiations over the sale of the collection to the club, according to council bosses. For the past decade the memorabilia was housed in the town's Museum and Art Gallery, which has now closed down.
Any items loaned back will go on display at the Dudley Archives on Tipton Road, while the remainder of the collection will be exhibited at the Old Trafford Museum.
Stuart Connelly, Dudley Council's head of visitor economy and cultural services, said the authority had been in regular contact with the Edwards' family and the club.
"Discussions have been extremely positive and Manchester United have agreed in principle to loan items from the collection to us," he said.
Councillor Bill Etheridge had written to the club requesting that items from the collection remain in the town. He said: "Duncan Edwards was the greatest footballer to ever call Dudley his home and it is important that his legacy lives on in the town.
"As yet we don't know what parts of the collection will be loaned back, but the signs are positive that the entire collection won't be disappearing. Dudley Council has taken a back seat in the negotiations between the football club and the Edwards' family, which is understandable as the council has no rights over the collection.
"Hopefully once the sale has been completed we can look forward to seeing the history of his career in the town for many years to come."
The collection includes an England shirt he wore in a World Cup qualifier against Denmark at Molineux in December 1956, when he scored twice in a 5-2 victory.
It also features 1955-56 and 1956-57 First Division championship medals he won at Manchester United, and a medal from the England v Ireland schoolboy international game in 1951 which saw him captain his country.
Edwards, who was born in Dudley in 1936, was part of the Manchester United's infamous famous Busby Babes' side. He made 177 appearances for the club between 1952 and 1958. He was aged just 21 when he was tragically killed in the Munich air disaster.