The three parties said Tuesday the two studios will co-finance and co-distribute "The Hobbit" and a sequel, while Jackson and partner Fran Walsh will serve as executive producers of the two films, which will be shot simultaneously.
Jackson and New Line have also settled litigation relating to royalties from the "Lord of the Rings" trilogy, which was based on stories from "Hobbit" author J.R.R. Tolkein.
"I'm very pleased that we've been able to put our differences behind us, so that we may begin a new chapter with our old friends at New Line," Jackson said in a statement. "We are delighted to continue our journey through Middle Earth."
Bob Shaye, New Line co-chairman added: "We are very pleased we have been able to resolve our differences, and that Peter and Fran will be actively and creatively involved with 'The Hobbit' movies. We know they will bring the same passion, care and talent to these films that they so ably accomplished with 'The Lord of the Rings' trilogy."
Filming is to start in 2009.