The singer, who died in 2011 after a long illness, achieved international success with solo hits Baker Street and Right Down The Line, as well as Stuck In The Middle With You with the band Stealer's Wheel.
His daughter Martha said last year that she was considering selling items, including the handwritten lyrics to Baker Street, at auction but council leaders in his home town of Paisley wanted to set up an exhibition in the town's museum and art gallery.
The family have agreed to loan some items, including the Baker Street lyrics, original album artwork and a guitar painted by Rafferty's artist friend John Byrne.
The exhibition will run from March 7 to May 9 and is part of the Bring It All Home festival, organised by Renfrewshire Council with the Rafferty family.
It will include other guitars decorated by Byrne, who is also from Paisley and who designed the album covers for many of the singer's solo records as well as for Stealer's Wheel.
Bring It All Home was held in Paisley for the first time earlier this year. Next year's event will feature a songwriting contest and three headline concerts, one of which will feature family and friends of Gerry Rafferty including Rab Noakes, Barbara Dickson, and Eddi Reader.
Renfrewshire Council leader Mark Macmillan said: "It is fitting that the success and talent of one of Paisley's most famous sons should be celebrated with an exhibition like this.
"For many people, the music of Gerry Rafferty was part of the soundtrack to their lives. He's also a great inspiration to others that the boy who grew up on a council scheme went on to develop and showcase his musical talent to a worldwide audience."
Last year Rafferty fan and record store owner Mike Dillon started a campaign to have a street named after the singer in Paisley. Gerry Rafferty Drive is now part of a housing development in the north end of the town.
Mr Dillon said: "The Gerry Rafferty exhibition is one of the most exciting projects to come to Paisley for many years.
"This will be a must-see exhibition for Rafferty fans. It will be a fantastic insight into the man and his music and I expect the exhibition will attract visitors from not only this country but from all over the world."
The first Gerry Rafferty songwriting prize was won by Paisley singer Michael Cassidy who also performed at this year's Bring It Home festival. He said he is looking forward to seeing the Rafferty exhibition.
"It was amazing to find out I had won the songwriting competition, and mum and dad were delighted as they're of a similar age to him and hold him in such high regard.
"There's also a bit of a connection as my dad played in folk bands when there was a big scene in Paisley and Glasgow and he played at some of the same gigs as Gerry Rafferty, and my uncle Joe actually played in the same band as him for a few years called The Mavericks.
"I know so much of his music so it'll be great to get around the exhibition and find out more about him."