The works will enable buses to jump the queue to turn right from Albany Highway on to Nicholson Road.
Investigations have shown that eight bus routes face long delays as cars queue up to 260m in the afternoons.
One straight-through highway lane will become a 24-hour bus-only turning lane.
Nicholson Road will be widened to continue the bus lane for about 200m.
Gosnells chief executive Ian Cowie said there had been other options for the intersection but the bus lane was the highest priority.
The memorandum of understanding allows for regular reviews of the plan’s effectiveness, with a view to keeping options for future works open.
PTA spokeswoman Claire Krol said without steps to improve traffic flow, congestion at the spot would worsen.
She said while stakeholders had considered many options, major infrastructure works would have impacted overall services more than this option.
Construction will start by mid-year.