The project, known as the C-1 trail, resolves one element of an otherwise contentious initiative proposed by the university in 2006 to comply with its use permit as it makes plans to develop open land on the Santa Clara County side of San Francisquito Creek, which forms a boundary with San Mateo County.
Stanford will deposit money with Portola Valley as needed to pay for the trail, thereby relieving the town of any upfront costs, Public Works Director Howard Young told the council.
Stanford has until Dec. 31, 2013, to complete the project, but work could begin as early as this year, Mr. Young said.
"From the Stanford side, this has been a terrific experience (with) a highly professional (town) staff," Stanford spokesman Larry Horton told the council.
The council replied in kind. "It's been a great process to interact with Stanford," Mayor Steve Toben said.
Councilwoman Maryann Moise Derwin added: "I'd just like to say that this has been a long time coming and I'm glad to see it."
Stanford had also proposed improvements to the casual collection of poorly paved and uneven paths that continue from Portola Valley east along Alpine Road past Ladera, under Interstate 280 and past Stanford Weekend Acres.
Residents of those communities said they prefer the trail's informality and rejected Stanford's plan out of hand.
An improved trail along Alpine Road would resemble a suburban sidewalk and draw new bicyclists and pedestrians to an arterial road that is already heavily trafficked, the residents said.
The residents had the support of the San Mateo County supervisors and the Committee for Green Foothills, which argued in court that Stanford should put a trail on the Santa Clara County side of the creek. The state Supreme Court recently decided in Stanford's favor.
If the San Mateo County-based parties continue to reject an improved Alpine Road trail, and the December 2013 deadline passes, Stanford must pass along the $8.4 million it would have spent on the Ladera-Weekend Acres section of trail to the Santa Clara County Parks Department.