The Adventure of the Creeping Man is one of the 12 stories in the Conan Doyle Collection The Case Book of Sherlock Holmes.
It was bequeathed to the council by his daughter, Dame Jean Conan Doyle, in her will when she died in 1997.
And after 12 years of legal wrangling it has finally been handed over.
The manuscript – worth a six-figure sum which the council won't reveal for security reasons, is being kept in a secure vault until city chiefs put it on public display later this year.
But The News was allowed a preview of the highly sought-after script.
Cllr Terry Hall, who is in charge of culture and leisure at the council, said: 'It sounds wrong to say but it doesn't look like very much.
'It is amazing to think of the literary and historical importance of what's inside.'
The story was first published in March 1923 and proved to be part of the final collection of Sherlock Holmes short stories.
The exercise book has since been bound in white leather with the title printed in gold on the front.
And at the back of the book an odd code has left Portsmouth's culture chiefs baffled.
There are lists of letters, words and scribbles in lead pencil that seem unconnected to Conan-Doyle's story. 'Maybe he let the children draw in the back of the book,' said Claire Looney, the council's arts and culture manager. 'Who knows? What is fascinating is when you can see where he has changed things, like at one point he changed the dog from a spaniel to a wolf hound.'
The manuscript will be added to the Richard Lancelyn Green collection, which includes 16,000 books and 2,000 Conan Doyle or Sherlock Holmes related objects and more than 1,000 boxes of archive material.
It is a particular coup for the council as this year marks the 150th anniversary of Conan Doyle's birth.
Cllr Hall added: 'We are very appreciative of this wonderful and generous donation.
'The Arthur Conan Doyle Collection is an extremely important for the city and helps us to further appreciate the rich literary legacy that Portsmouth has to offer.'
AUTHOR WAS POMPEY'S FIRST GOALKEEPERSir Arthur Conan Doyle lived in Bush Villas, Elm Grove, Southsea from 1882 to 1890.
He came to Portsmouth to try and set up a doctor's practice.
When he left in 1890 he was married and a successful doctor who played a leading role in Portsmouth's political, literary and sporting life.
In his study at Bush Villas – now flats after the original house was destroyed following the war – he created the world's most famous detective, Sherlock Holmes, in 1886.
Doyle was the first goalkeeper of what became Portsmouth Football Club. He was also captain of Portsmouth cricket team and both cricket and football teams.
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