The Corporation backed down minutes before the High Court hearing was due to commence and agreed to reconsider a 20mph zone, possibly as early as October.
The judge, Mr Justice Collins, commenting on the last minute settlement, said: "It doesn't altogether surprise me".
The Corporation had originally proposed a 20mph zone to go in during 2005 but this was abandoned for the unusual reason that it would result in a "plethora of signs", a view based on a legal error it was later was forced to admit.
The case had won high profile support of national groups including Transport 2000, RoadPeace and the Royal National Institute of the Blind.
Ralph Smyth, co-ordinator of City Cyclists, used his legal knowledge to bring the judicial review under court rules.
"We are all delighted by the result," said Smyth.
"The campaign for 20mph zones in central London is now growing and attracting support from a wide range of people including disabled people, environmentalists and road safety campaigners."
Cyclists and campaigners, including Cynthia Barlow whose daughter was killed cycling along London Wall in 2000, demonstrated outside the Royal Courts of Justice before the hearing with placards saying "20 now!" and demanding safe streets.
Among them was Green Party Member of the London Assembly and London's Road Safety Ambassador, Jenny Jones, who on the same day tabled a formal question to Mayor Ken Livingstone whether he will push the Corporation to introduce a 20mph limit.
She said: "20mph zones are appearing all over London except in the centre where more people walk and cycle, and where the safety problems are the worst.
"With most of the traffic already unable to travel above 20mph other than for short bursts between queuing at traffic lights, this makes no sense at all."