Known as a Benin Bronze, it was snatched by British colonial forces and donated to Jesus College in 1905 by the father of a student.
The college's unprecedented step follows a campaign by students against the 'spoils of war'.
It will be one of the first bronzes to be returned to Nigeria by a major institution since thousands were stolen during an expedition in 1897.
The piece was removed from public view in March 2016 after students protested that it celebrated a 'colonial narrative'.
The college then opened a discussion with the Benin Dialogue Group, a collective of artists and museum representatives who meet to discuss the bronzes.
Jesus College yesterday confirmed the sculpture will be returned home, although no specific date has been named.
It said: 'Following interim recommendations from our legacy of slavery working party, Jesus College has decided that a Benin Bronze statue of a cockerel will be returned, and that we will acknowledge and contextualise Tobias Rustat's role in our history.'
Victor Ehikhamenor, a Nigerian artist and member of the Benin Dialogue Group, told The Guardian: 'No matter how small the gesture may look, it is a huge step toward the realisation of restitution of the works from the Benin Kingdom that were looted by the British.
'I hope other Europeans, especially British institutions, will follow without any excuses or delays.'
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