The first free school has been given the green light to open in September.
The parent-led West London Free School - set up by the writer Toby Young - is the first to sign what is known as a funding agreement, or contract, with the government.
The secondary school will initially have a temporary home in Hammersmith.
Critics say the new-style schools, funded from central rather than local government, will increase divisions in the state system.
Free schools are semi-independent and are being set up by groups including parents and charities.
The West London Free School will be a mixed school, taking 120 pupils a year.
The parents behind the school say they want it to be academically excellent with a "classical curriculum", with all children studying Latin up to the age of 14.
They say there will be strong discipline and a "competitive atmosphere" - particularly in sport - and an ethos which aims to "instil ambition in all pupils, no matter what their background".
There were 445 applications for September and families who applied have begun hearing if their child got a place.
Writer and broadcaster Toby Young said: "We are absolutely delighted and hope that our success inspires other groups of parents and teachers to follow in our footsteps."
The drive to create free schools is controversial.
The government says the programme will improve standards and choice.
Teaching unions, Labour and other opponents claim free schools will increase divisions in the state school system and weaken educational services provided by councils because they are directly funded from central government, not through local authorities.
So far, there have been 258 applications to set up free schools. Of these, 40 have now been approved to what is known as "business case" and nine - including the West London Free School - have passed to what is called "the pre-opening stage".
Mr Young said: "It's too early to say whether the free schools policy will be a success, but we have at least proved that a group of unpaid volunteers can establish a new school.
"Whatever reservations you may have about voluntary groups delivering public services, we have put paid to the myth that people simply won't have the time.
"I can't pretend it's been easy. Nothing worth doing ever is. As the leader of the project, I've devoted between 40 and 60 hours a week to it for the last 18 months. My wife often jokes that if I spent the same amount of time on my career as I spend on the school we could afford to send all our children to Eton.
"Probably true, but what began as a project has become a crusade."
A spokeswoman for the Department for Education said: "We are very pleased to confirm that the secretary of state has signed the funding agreement for the West London Free School, which plans to open in September this year.
"Free schools will provide all children - not just the rich - the opportunity to go to a good school with great teaching, strong discipline and small class sizes."
The school is expected to open temporarily in a building in Hammersmith being vacated by a special school before moving to a larger site nearby in September 2012.
The permanent home - Palingswick House - is owned by Hammersmith and Fulham Council.
The plan is that the government would buy that and transfer the deeds from the council to the school's Academy Trust.
If the school later lost its contract (funding agreement) with the government, the deeds to the property would then automatically be transferred to the Department for Education.