The Rotorua Lakes Council has signed an agreement to co-manage the springs that supply the city's drinking water and return the land to local hapū.
In 1954, Ngāti Kearoa-Ngāti Tuara offered the Karamu Takina springs for the Rotorua water supply, insisting the land the springs are on remain with iwi.
But the council used the Public Works Act to force the sale of 14 acres of land around the springs.
As part of the forced purchase, the council agreed the Māori owners could tap the pipeline to serve the Tihi-o-Tonga A Block, but the council wrongly charged more than $125,000 in rates.
"It is 67 years since our hapū leaders agreed to support the community by providing water for the town," said Robyn Bargh, chair of Te Rūnanga o Ngāti Kearoa Ngāti Tuara.
"However, they didn't agree to their lands being sold."
On Sunday, an agreement was signed with the council at Tarewa Pounamu Marae that will see the springs returned to mana whenua, and a joint management strategy developed for the springs.
"Rotorua Lakes Council have agreed that the council doesn't need to own the land. The Karamu Takina Spring can be co-managed with iwi," Bargh said.
Mayor Steve Chadwick said the generosity of Ngāti Kearoa-Ngāti Tuarua had been taken advantage of.
"The not-so-distant history of the forced sale of your lands and then council's failure to meet the obligations of that sale are an uncomfortable truth that had to be acknowledged and addressed," Chadwick said.
"I am sad that it has taken us nearly 70 years to get to this point, but very grateful that we are finally here."
The agreement also saw the council return two other sections of land to Ngāti Kearoa-Ngāti Tuara, including Pururu North Reserve tennis courts and a section in the suburb of Tihi-o-tonga.