A collection of historic Australian paintings discovered at the back of a dusty cupboard on the other side of the world will soon return home.

An album containing 35 watercolours and drawings dating from 1818 - said to be a highly significant archive illustrating Australia's colonial past - has been sold to the NSW State Library for almost $2 million.

It was discovered recently in a cupboard at a deceased estate in Ontario, Canada, and sold at auction to the State Library for $1.8 million Canadian on Monday morning AEDT.

"We're absolutely thrilled to be bringing it home to Australia where it belongs," said the State Library's Richard Neville in a statement.

The album will be kept in the Mitchell library collection in Sydney, though it will be several months before it arrives in Australia.

View the album here.

The works were compiled by Captain James Wallis, who served as commandant of the Newcastle penal settlement between June 1816 and December 1818.

Though some of the pieces bear Captain Wallis's name, is is thought most were actually created by convict artist Joseph Lycett, with whom the commandant struck a friendship.

Lycett, from Staffordshire, England, was convicted of forgery and transported to Australia aboard the General Hewitt in 1811.

In Sydney he was convicted again, this time for flooding the streets with fake five shilling coins. He was banished to Newcastle in 1815.

The album contains rare watercolours of the Awabakal people from the Newcastle area, and landscapes from Sydney and regional NSW.

Mr Neville says some of the paintings shed new light on the relationship between white settlers and the Indigenous population.

Funds for the purchase of the album came from an acquisition fund and from benefactors.

A spokesman for the State Library says the purchase was not the most expensive it had ever made, but described it as a "major" transaction.

Mr Neville admits: "It is a lot of money but this kind of stuff doesn't come up very often..

"If you want to get these things you have got to be prepared to dig deep ... It sounds like a lot of money but in five years time no-one will give a toss about how much we paid for it and they will just be interested in the artefact."

ABC/AAP