St George's in Church Gresley, near Swadlincote, crammed a class into former parent-governor Alan Hines' living room as a "short-term" measure back in 1993.
Now work is due to start on a four-room classroom block within weeks. A refurbishment of the Victorian school building will follow and by autumn 2002 all pupils will be educated on site.
Head Brian Towe said: "Mr and Mrs Hines have been absolutely superb. I can't give them enough praise for what they have done."
Every day 24 children file into the Hines' living room through an external door created for them.
Teacher Jane Morris, 29, who takes the Year 3 class, said: "We do feel we're intruding and it is very isolated from the rest of the school."
The kitchen is on the other side of the wall from the room where the children are taught and Helen Hines said: "I hear them all the time.
"We've always been on good terms with the school but for the common good we want them to have a proper classroom and we would like our house back."
The Hines have a six-bedroom house and five children, all of whom are now too old for the school. They pay the bills for the classroom in return for a rent from Derbyshire County Council of pound;1,100. This year, they have had a final pound;10,000 lump sum from the council.
The school was built in 1865 to accommodate 80 children. It now has a roll of 168 five to 11-year-olds.
As well as the house next door, overspill classes are taught in a temporary building on the playground, the school hall and even a corridor.
A Derbyshire County Council spokeswoman said: "To put in a temporary classroom in the school grounds would have cost at least pound;25,000 and there were other issues about it being next to the building site for the new classes.
"We appreciate the Hines letting us use their room."