Cahorreigh National School, known as Two Mile School due to its distance from Killarney, did not enrol any children last year.
After numbers fell to 17 in 2015, the Catholic Bishop of Kerry Ray Browne was considering its viability.
He now plans to lease the building to Kerry Education and Training Board, which hopes to open a community national school (CNS) there in September.
But Educate Together said the announcement is a disappointment for parents in Killarney it has worked with since being picked as their choice of multi-denominational patron in 2013.
Educate Together chief executive Paul Rowe said the organisation suggested Two Mile School as a viable option to the Department of Education last October and again in March after learning that it was to close.
Instead, Kerry ETB is to hire a principal and invite enrolments from pupils from infants up to sixth class with a view to taking it over in the autumn. The department said it will continue to seek a property for an Educate Together school in the area.
It said the bishop had indicated the decision to lease the building to Kerry ETB for a CNS was made in consultation with and in line with the local community’s wishes.
The ETB was invited to outline its CNS model to a meeting in March by a local community group, which asked the bishop to make the school available for the project after a local vote.
Educate Together and Irish language body An Foras Pátrúnachta, which also runs multi-denominational schools, said they were not invited to make a case to become patron.
Catholic bishops prefer the CNS system as it permits the preparation of pupils for sacraments during school time, unlike Educate Together which restricts use of its facilities for such activities to outside of school hours.
Mr Rowe said the transfer vindicates concerns about Education Minister Richard Bruton’s plans to reconfigure primary patronage, which it says gives the Catholic Church undue influence, instead of families.
Mr Bruton proposed in January that properties be leased instead of handed over, in plans that give bishops final say over which patron takes over any schools being transferred.