The library and Reed's wife, musician Laurie Anderson, made the announcement Thursday, on what would have been his 75th birthday. The Lou Reed Archive features paper and electronic records, photos, and about 3,600 audio and 1,300 video recordings.
"What better place to have this than in the heart of the city he loved the best?" said Anderson.
Reed, an aspiring poet, rose to prominence after Andy Warhol encountered The Velvet Underground, the experimental rock band he formed in 1964. Warhol produced the band's first studio album and invited it to perform as part of his recurring multimedia event, The Exploding Plastic Inevitable.
After leaving The Velvet Underground in 1970, Reed enjoyed success as a solo artist, releasing nearly 30 albums and publishing several volumes of poetry and photography, according to the library.
"He paved the way for the punk and glam rock of the '70s, inspired the use of noise and experimental techniques in pop music, and later explored ambient sound and music for meditation," it said in a statement.
The library will host free displays and public programs over the next two weeks to celebrate and showcase Reed's life and work, and his collection's new home.