Ball State University will take control of Muncie schools.
Legislators used a one-day special session to dissolve the Muncie school board and hand the district to Ball State.
The university will appoint a new board to turn around a district burdened by rising debt and declining enrollment.
Republican legislators claim the district has made matters worse through financial mismanagement.
The bill also abolishes the Gary school board, giving full control to an emergency manager installed last year.
The Governor is expected to sign it into law.